Markets live chat transcript for the chat ending at 12:04 on 21 May 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH) Sam Jones (SJ)
PM:
Welcome to Markets Live, FT Alphaville’s daily markets thingy.
PM:
Neil Hume is with me.
PM:
But he’s locked out of his computer
PM:
PM:
Seriously locked out
PM:
We have to change our passwords here at the FT every 36 hours or so
PM:
And guess wot…
PM:
I can also report that Bryce Elder has joined the paper today – to work with Neil.
PM:
But not joining Markets Live just yet.
PM:
Needs to be trained up
PM:
In how to spell badly.
PM:
How to contact IT.
PM:
That sort of thing.
PM:
neil is almost up and running
PM:
Should mention Sam Jones excellent piece on Moody’s this morning
PM:
Hope everyone has read that
PM:
I am not going to say much on the matter 
NH:
Morning, been having some password problems
PM:
thanks f ing lot Helen
PM:
Your fired
PM:
NH:
Yes, I saw that. Paul, looked like you had a serious back problem
NH:
leaning forward way too much
PM:
Why don’t you all just criticise me
NH:
Well, I am something of CNBC veteran now
PM:
Yes yes
PM:
Regular TV star
PM:
Anyway, shall we get on
PM:
NH:
BSB good point on the HBOS deal
NH:
looks like a total token gesture
NH:
company probably dipping their toe in the market to see how much it costs to get a MBS away
NH:
and have seen that its 6.7% that will probably be it for now
PM:
Ratehr cheaper raising money from depositors
NH:
as you point out, difficult to see them making money at that level
PM:
Notice HBOS off today — down 9p at 456
NH:
ah, that’s the level Hornby and his fellow directors piled in after the bank robbery THAT NEVER HAPPENED
PM:
Best looking bank ceo — according to James Eden
NH:
is that right
PM:
According to Eden, yes
NH:
competition not hot though
NH:
Varley
NH:
Eric Daniels
PM:
has a good tan, Danels
PM:
(Throng — i know that )
)NH:
NH:
right, where shall we start??
NH:
MPC minutes???
PM:
voting was as expected – 8-to-1
NH:
The one being Danny Slasher Blanchflower. He wanted a 25pb cut
PM:
Here’s some of the minutes
PM:
36 For one member it was, however, particularly important to look through the short-term spike in inflation. The factors pushing inflation up – oil and other commodity prices – were beyond the MPC’s control and, with pay growth remaining subdued, this period of above-target inflation would have little tendency to persist. The current and prospective weakness of demand meant that there was a clear risk of missing the target on the downside looking further ahead. An immediate reduction in Bank Rate
was necessary to reduce that risk.
was necessary to reduce that risk.
PM:
But the view that prevailed:
PM:
35 For most members, a reduction in Bank Rate this month would make it more difficult to keep inflation expectations in line with the target. CPI inflation was already at 3% and the Committee expected it to rise further in the near term. Although economic activity was likely to slow, the Committee had judged that some slowing in the growth rate of output was likely to be necessary for inflation to settle close to the target around two years ahead. A further reduction in Bank Rate this month could create the impression that the Committee was trying to stabilise output growth rather than maintaining its focus on the inflation target.
PM:
Minutes are here:
NH:
here’s some comment from Howard Archer at Global Insight
NH:
The minutes of the May MPC meeting largely reinforce the view that the Bank of England is “wait in see” mode for an extended period as it monitors growth and inflation developments.
NH:
The minutes highlight the MPC’s heightened concern over current rising inflation and the upside risks to the medium-term inflation outlook. The committee is currently particularly that persistently higher inflation over the coming months – primarily resulting from higher utility and food prices, as well as a markedly weaker pound – could further lift inflation expectations and lead to serious second round effects through affecting the behaviour of price and wage setters. Certainly, inflation expectations have risen recently, while latest surveys show that companies are currently very keen to raise their prices to support their margins.
NH:
While the MPC is also very concerned about the growth outlook, it believes that it is critical for the economy’s long-term stability and strength to ensure that the rise in inflation is temporary and that companies and employees believe that the Bank of England is fully committed to bringing inflation back down to the 2.0% target level.
NH:
With inflation likely to approach 4.0% this summer, the Bank of England will tread extremely carefully on the interest rate path. Nevertheless, we believe the Bank of England could yet trim interest rates from 5.00% to 4.75% in the final months of this year in reaction to very weak economic activity, elevated concerns about the housing market and ongoing tight credit conditions. However, for this to happen the bank will want clear evidence that wage moderation is continuing and that muted economic activity is undermining companies’ pricing power. The Bank of England will also need to see that inflation expectations are being capped.
Further out, we expect interest rates to fall to 4.50% by the end of 2008 or early in 2009, and it is still very possible that they will ultimately fall further in 2009 as an extended period of very weak economic activity increasingly dilutes underlying price pressures and leads inflation to retreat significantly.
NH:
bickie
Reminder to readers – if you arrived late and want to stop the dialogue ‘jumping’ as you catch up, hit the ‘pause auto-scrolling’ tab at the bottom right hand corner
PM:
PM:
While we are on the macro picture
PM:
Got the latest bear note from SocGen
NH:
what, Albert Edwards???
PM:
Not on this occasion – from his bear cub, James Montier.
PM:
Actually – im going to put all of this up. Tho I think it might be preaching to some of the converted.
PM:
We have seen the heads of virtually all financial institutions stand up over the last few months and
claim the worst is behind us. Why would anyone listen to these people? They didn’t see the
disaster coming, and yet somehow they are qualified to tell us it is all alright! Perhaps I am just
unduly sceptical, but this reeks of a conspiracy of optimism. The recession has barely started, let
alone reached its nadir. The market moves of late have all the hallmarks of a classic sucker’s rally.
This isn’t discounting the recovery, this is denial! Far from being behind us, the worst may well still
be ahead!
claim the worst is behind us. Why would anyone listen to these people? They didn’t see the
disaster coming, and yet somehow they are qualified to tell us it is all alright! Perhaps I am just
unduly sceptical, but this reeks of a conspiracy of optimism. The recession has barely started, let
alone reached its nadir. The market moves of late have all the hallmarks of a classic sucker’s rally.
This isn’t discounting the recovery, this is denial! Far from being behind us, the worst may well still
be ahead!