UK markets in 3 charts ahead of Super Thursday

<p>With so much to digest from the BOE later today, we need to find easy ways to try and break it down to see what […]</p>

With so much to digest from the BOE later today, we need to find easy ways to try and break it down to see what impact the combined release of the BoE interest rate decision, minutes and Inflation Report could have on the markets.

Rather than try to track everything, we will be looking at 3 assets to determine the impact of Super Tuesday.

1, The Sonia rate

The Sonia rate is useful to look at today to get a sense of the market’s expectations of UK interest rates in 3 months’ time. If this is considered hawkish then Sonia rates should rise and the market may start to price in a potential rate hike before the end of this year, helping the UK to play catch up with US rate expectations.

Chart 1:

0608chart1

Source: City Index and Bloomberg

2, GBPUSD

Can a hawkish Carney take us out of this range? We hope so, since GBPUSD has been as dull as dishwater recently. If the BoE talks tough on wage pressures and the need to get started on normalising interest rates then we think this could push GBPUSD outside of its range and back towards 1.60.

Chart 2:

0608chart2

Source: City Index and Bloomberg

3, The performance of highly indebted, UK-listed companies such as Aggreko

This power generator leasing company has a high debt load, approx. 1/6th of its market cap. It has also suffered from weak profit growth, falling EBITDA margins and negative earnings per share growth in recent months. Could a hawkish BoE, and the threat of higher interest rates weigh on the share price, we think so. We will be watching the performance of Aggreko during Carney’s speech and using the performance of its share price as a good gauge of whether the market thinks that higher interest rates are a near term possibility for the UK.

Chart 3:

0608chart3

Source: City Index and Bloomberg

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