It's deja vu all over again in Sintra.
Yesterday, Draghi sent EUR and Bund yields surging on his 'hawkish' comments, which he was forced to talk back just over an hour ago, and today the confusion is back and it is the UK's turn as Bank of England governor Carney just hinted that the removal of stimulus is likely to become necessary, reversing on his own dovish stance unveiled just last week.
The section in question is the following (his full speech is here)):
Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional. The extent to which the trade-off moves in that direction will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations. These are some of the issues that the MPC will debate in the coming months
The reaction, just as yesterday, is a spike in cable and gilt yields. As Bloomberg adds “the comments mark a shift in emphasis after the governor signaled last week that now was not yet the time to start that process. In his speech on Wednesday, he clarified that that was his position as of when the MPC last met on June 15. Lifting rates hinges on whether spare capacity in the economy erodes and the balance between supporting growth and tolerating faster inflation becomes less stark, he said."
“When the MPC last met earlier this month, my view was that given the mixed signals on consumer spending and business investment, it was too early to judge with confidence how large and persistent the slowdown in growth would prove,” he said. “Moreover, with domestic inflationary pressures, particularly wages and unit labor costs, still subdued, it was appropriate to leave the policy stance unchanged at that time.”
And the reaction is clear - sterling buying:
and Gilt selling...
As Morgan Stanley notes, a number of central banks including the Fed, BoC, BoE, Norges Bank and importantly the ECB have turned hawkish relative to previous market expectations. Central banks taking the punch bowl of liquidity away does not bode well for the outlook for volatility in the short term, leading to position adjustments. Bond yields have moved sharply higher taking the lead from Germany’s 2 year Schatz yield (5.9bp), the US yield curve has steepened and equity markets have seen the previously strong tech sector selling off hard as investors shift back from growth towards value. Conditions for the emergence of a proper bear market are not yet in place, even so, yesterday's high trading volume suggests that corrective activity may stay with us for several days.
How long before his remarks are walked back or "clarified."?