Bank of England Rate Cut Odds Hit 100% as Growth Estimates Sink Most on Record; Where to for British Pound?

Investors believe it’s 100% certain the Bank of England will cut rates at its next meeting.

UK interest rates are already at a record low 0.50% but they will sink to 0.25% at the next meeting according to UK interest rate futures.

Analysts also expect the BoE to Slash Growth Targets by Biggest Margin on Record.

Investors believe an interest rate cut is certain, with most analysts expecting rates to be trimmed to 0.25pc, from the current record low of 0.5pc.

Economists believe growth in 2017 will be slashed to less than 1pc, from 2.3pc in May.

A reduction of this magnitude would be the biggest cut to the Bank’s growth projections between consecutive Inflation Report forecasts since it became independent in 1997, surpassing the 0.9 percentage point downgrade in November 2008, after Lehman Brothers collapsed, according to HSBC.

Growth in 2016 is also expected to be trimmed to around 1.5pc, from 2pc in May.

In the same month, Mark Carney, Governor of the Bank, warned that a Brexit vote could push the UK into a technical recession – defined as two quarters of falling economic output.

Andrew Goodwin, lead economist at Oxford Economics, said: “We think the Bank might expect third- quarter growth to be negative, but the shock to then dissipate and the UK to escape a recession, as evidenced by the Lloyds survey where the initial knee-jerk reaction was quite bad, but when people became accustomed to it they realised that business was carrying on.”

A rate cut plus a possible boost to the Bank’s quantitative easing programme is expected after the Monetary Policy Committee said in July that “most” of its nine members expected that policy would be eased in August.

BoE Sure Thing

I would generally be inclined to take the other side of these “sure thing” setups but central banks do not like to disappoint market expectations.

Technical Recession

What’s with this technical recession nonsense. There is either a recession or there isn’t. Two consecutive quarters of negative growth are a sufficient but not necessary condition for a recession in the US.

In any country, two quarters of negative growth is proof of a recession.

Brexit will take the blame, but it’s pretty clear global growth was already cooling.

Spotlight on the British PoundGBP 2016-07-30

Despite the alleged certainty that the BoE Will cut rates and speculation it will slash growth rates the most on record, the British Pound has stabilized.

A British Pound selloff may very well be over.

Mike “Mish” Shedlock

Dollar Crisis in Egypt; Egyptian Pound Crashes on Black Market; Another Devaluation Likely

A collapse in the Egyptian pound is underway. The official pegged price says one us dollar buys 8.78 Egyptian pounds. The street price says one dollar buys 13 Egyptian pounds.

Egyptian Pound vs US$

Please consider Dollar Crisis Casts Shadow on Auto Sales in Egypt.

The automotive market in Egypt has been experiencing an unprecedented wave of price hikes due to a dollar crisis amid anticipation by analysts that the Egyptian pound would be further devaluated by the Central Bank.

Fluctuations in the exchange rate have cast shadow on the import sector, threatening a potential stagnation in the car market, as an acute hard currency shortage hampers trade in the import-dependent country.

“We closed our store over the past five days,” said Kareem Hussein, sales manager at Stars Auto store in downtown Cairo.

“The increase of the dollar’s exchange rate against the local currency caused stagnation in the sales and made the clients reluctant to conclude any deal,” he added.

The Egyptian pound weakened to a shocking rate of 13 against the U.S. dollar on the black market on Tuesday, at least 42 percent weaker than the Central Bank’s official rate of 8.78.

On Friday, the pound was trading at around 11 per dollar on the black market after a security crackdown had been launched on many exchange offices on Wednesday and Thursday.

The official banking system has been suffering from lack of “dollar resources” since the 2011 popular uprising, which led to the reluctance of foreign tourists and investments, the two main sources of hard currency.

Auto sales have declined by nearly 50 percent in July due to the unprecedented price hikes, Hussein said. Some 10 percent of the clients have withdrawn their deposits last week, he pointed out. “We live in a nightmare due to the dollar crisis,” he lamented.

The devaluation of pound has caused tremendous losses in the car sector and forced the merchants to increase the prices by 32 percent and made them looked like “exploiters.”

Not Enough Dollars

We see the same story once again: “There are not enough dollars to go around.” Mercy! Get out the printing presses.

Mike “Mish” Shedlock

BitGold: Open Your Account Today!

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1 thought on “Dollar Crisis in Egypt; Egyptian Pound Crashes on Black Market; Another Devaluation Likely”

  1. Seenitallbefore said:

    July 31, 2016 8:39:19 at 8:39 AM

    So when we give them 3 billion in aid will that be at the official exchange rate or black market rate.


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Chicago Pension Situation Improving Says Mayor: Careful Analysis Uncovers Lies

Chicago Mayor Rahm Emanuel brags about balancing the Chicago budget and fixing the city’s pension plans. Reuters writer Dave McKinney took the lies hook line and sinker.

Mark Glennon at Wirepoints Illinois separates fact from fiction in his article Chicago’s Friday Bunk Dump.

This is a guest post by Glennon.

Chicago’s Friday Bunk Dump by Mark Glennon

Fridays in the summer are a great day to dump news you don’t want scrutinized, as reporters will tell you. Today, we got a new financial report from the city, the actuarial reports for its police and firefighter pensions and news of a private offering by Chicago’s school district.

The Report

First, the city released a carefully written, glitzy, Annual Financial Analysis. At least they put it online this year, a departure from the past, but that’s probably because it’s such meticulously prepared misinformation. Hooray, said most headlines and Mayor Emanuel in his cover letter: The 2017 deficit for the city will only be $138 million.

Only under a perverted meaning of “deficit,” they should have added. The report means little because it doesn’t include losses sustained in pensions and tax hikes for pensions deferred to the future, and it’s pensions that are Chicago’s primary problem. The kicked can isn’t included. Instead, the report is centered on near term, annual contributions to the pensions, which are made up by politicians and are inadequate even using the phony accounting that goes into them. That’s a primary reason why unfunded liabilities grow routinely.

Specifically, here’s what they didn’t tell us: The deficit appears low now because taxpayer contributions gradually ramp up and then, in 2020, go up further to whatever-it-takes, sky’s-the-limit, annual amounts sufficient to fund the pensions, and property taxes automatically increase to cover those amounts.

That’s for the police and firefighter pensions. For the small Laborer’s fund, that date is 2022, paid for mostly out of a telecom tax. MEABF, the city’s largest fund, will be dealt with in a yet-to-be announced plan funded by a “dedicated revenue source,” the city tells us, which means a new tax of some kind.

Following is a schedule of taxpayer contributions to the police and firefighter contributions, taken from the report. Those will have to be covered by property tax increases. Expect the same on different taxes for the other two pensions.

chicago police and fire contributions

The city gloats in the report that, “For the first time since 2011, the gap for the coming year is put forward without separate consideration of the City’s pension funds. As of July 29, 2016, the City has identified a permanent, reoccurring source to fund three of its four pension funds.” That source is years of tax increases that haven’t been properly explained to the public.

Most reporters have accepted the report as good news. Perhaps the worst was Dave McKinney at Reuters, whose headline is, “Chicago deficit narrows despite pension uncertainty.”  To the contrary,  a better headline would be, “Chicago ignores pension tax certainty to claim deficit narrows.”

The same issue plagues city budgets, which is why Rahm regularly gets away bragging about balancing the city’s. “This is the fourth year in a row we have balanced the budget,” he said in his last budget address. In fact, the city lost about $5 billion last year (though that results largely from a change to more realistic accounting standards) and about $1 billion in each of the previous four years, according to its own financial statements.

Actuarial Reports for Chicago Police and Firefighter Pensions

Today, I finally got the actuarial reports for the Chicago police and firefighter pensions, which I had filed a Freedom of Information Act (FOIA) request on July 8.

For the police pension, Net Pension Liability (that’s the term for unfunded liability under the new accounting standards) worsened by $260 million, ending 2015 at 8.97 billion. The funded ration worsened from 26% to 25.4%.

For the firefighter’s pension, Net Pension Liability worsened by $304 million in 2015, ending the year at $3.78 billion. Its funded ratio worsened from 23% to 21.7%. That’s actually much better performance for the year than I expected. However, with funded ratios near 20%, these pensions are in truly horrid shape.

Together with the two other Chicago pensions whose reports were released earlier, the total Net Pension Liability for the city is $33.8 billion and they are 23% funded in aggregate. Obviously, that’s far worse than the $20 billion total that’s been commonly reported over the past year. Much of that change results from the shift to new, more realistic accounting standards.

You can add another $10 billion for the CPS pension. We’ll try to add it all up soon for all the other overlapping pension obligations when we can — Cook County, Chicago Park District, Cook County Forest Preserve, Metro Water & Reclamation District, RTA, CTA and state pensions.

None of these numbers include healthcare obligations, which are very hard to nail down, and are not addressed in the Annual Financial Analysis.

Chicago School Borrowing

Also today, CPS announced it borrowed another $150 million. What’s unusual is that it was done as a private placement — a reflection of its difficulty accessing the usual public markets. We don’t know all the terms of the deal because CPS did not release the key documents. The CPS says it will release those on September 2.

September 2, eh? That would be the Friday before Labor Day weekend. Credit these folks with consistency.

Mish Comments

Thanks to Mark Glennon, the founder of WirePoints.

Mike “Mish” Shedlock

Germany Flashpoint: Pro-Erdogan and Anti-Erdogan Rallies Planned, 30,000 Expected

A pro-Erdogan rally in Germany is expected to draw as many as 30,000 brainwashed Eddogan supporters, Islamists, and radicals seeking to stir up trouble.

A counter rally is also planned. If these rallies do not stir up some violent clashes I will be amazed.

Pro-Erdogan Rally

Bloomberg reports Pro-Erdogan Rally in Germany Seen Drawing 30,000 Amid Tensions.

As many as 30,000 people are expected to take to the streets in Cologne, Germany, on Sunday in support of Turkish President Recep Tayyip Erdogan, with local police concerned that a counter-demonstration may spark violence.

“We assume the atmosphere will be emotionally charged,” police chief Juergen Mathies told Die Welt newspaper. “We are prepared for particular forms of violence.”

About 2,300 policemen will be deployed at the rally, which is organized by the Union of European-Turkish Democrats. Erdogan’s government will be represented by Youth Minister Akif Cagatay Kilic, according to the Bild newspaper.

Right-wing demonstrators are planning to stage a counter march under the slogan “No Tributes to Erdogan in Germany: Stop the Bosphorus’ Islamist Autocrat.” A judge authorized the event, which is supported by the German far-right political party Pro NRW, despite efforts by Cologne police to bloc it amid security risks, the German DPA news agency reported on Saturday.

Stop the Bosphorus’ Islamist Autocrat

I suspect something was lost in the translation of that slogan from German to the above. Yet, the intent is clear once one understands the word Bosphorus.

The Bosphorus is the 32 km (20-mile)-long north-south strait that joins the Sea of Marmara with the Black Sea in Istanbul, and separates the continents of Europe and Asia.


“Turkish conflicts mustn’t end up in violence in our streets and squares,” Julia Kloeckner, deputy chairman of Chancellor Angela Merkel’s party CDU, told Die Welt.

What “mustn’t” happen is about to.

Mike “Mish” Shedlock

Erdogan Accuses US General of “Taking Side of Plotters”, Seeks Personal Control of Army; US Directly Implicated in Coup Plot?

The consolidation of supreme power to Turkish president Tayyip Erdogan continues unabated.

Erdogan seeks presidential (personal) control of the army while directly accusing the US of taking sides with coup participants.

In the rumor mill category, an unnamed US lieutenant general was allegedly directly involved in plotting the coup from the Incirlik airbase in Turkey.

Erdogan Accuses US General of “Taking Side of Plotters”

The BBC reports Erdogan Says US General ‘Taking Side of Plotters’.

Turkey’s president has blasted remarks by top US general Joseph Votel in the wake of the failed coup, accusing him of being “on the side of the plotters”.

Gen Votel, head of US Central Command, said jailing some military leaders could damage Turkish-American military co-operation.

President Erdogan condemned the comments, saying: “It’s not up to you to make that decision. Who are you? Know your place! You are taking the side of coup plotters instead of thanking this state for defeating the coup attempt.”

He added: “They [the critics] say, ‘We worry for [Turkey’s] future’. But what are these gentlemen worried about? Whether the numbers of detained and arrested will increase? If they are guilty, they will increase.”

50,000 Passports Cancelled

The BBC article notes “More than 66,000 public sector workers have been dismissed from their posts and 50,000 passports cancelled, while the labour ministry is investigating 1,300 of its staff. The state has also shut 142 media outlets and detained several journalists.”

Anyone whose passport was cancelled is likely to spend the rest of their life in prison, assuming of course they are not quickly executed.

Erdogan Seeks Personal Control of Army

Reuters reports Erdogan Wants Army Under President’s Control After Coup.

Turkish President Tayyip Erdogan wants the armed forces and national intelligence agency brought under the control of the presidency, a parliamentary official said on Thursday, part of a major overhaul of the military after a failed coup.

Erdogan’s comments came after a five-hour meeting of Turkey’s Supreme Military Council (YAS) – chaired by Prime Minister Binali Yildirim and including the top brass – and the dishonorable discharge of nearly 1,700 military personnel over their alleged role in the abortive putsch on July 15-16.

Erdogan, who narrowly escaped capture and possible death on the night of the coup, told Reuters in an interview last week that the military, NATO’S second biggest, needed “fresh blood”. The dishonorable discharges included around 40 percent of Turkey’s admirals and generals.

In the aftermath of the coup, media outlets, schools and universities have also been closed down. Ankara prosecutors requested the seizure of the assets of 3,049 judges and prosecutors detained as part of the investigation into the coup attempt.

Thousands Protest Outside U.S. Base in Turkey, Burn US Flags

Military.Com reports Thousands Protest Outside U.S. Base in Turkey.

Thousands of Turkish protesters filled the streets outside the U.S. military base at Incirlik, Turkey, on Thursday, burning American flags and demanding that the government close the base.

The U.S. military maintains an arsenal of nuclear weapons at Incirlik and it is an operational hub for the air campaign against the Islamic State group in Iraq and Syria.

US General Involved in “Think Tank” Plotting of Coup from Incirlik Airbase?

File this one in the rumor mill category: Incirlik Airbase Served as “Think Tank” of Plotters in Turkey Coup.

Reportedly, a day before the military coup attempt, the generals supporting Fethullah Gulen gathered at Incirlik airbase for a secret meeting.

The fact was revealed after the testimony of one of the detained Turkish generals who were involved in the military coup attempt.

Moreover, reportedly, a US lieutenant general, whose name hasn’t been disclosed yet, also participated in this meeting.

Protest at Incirlik Airbase

Turkey Protest

Anyone Believe ….

  • The coup was plotted at the Incirlik Airbase?
  • A US lieutenant general was involved?

Reader Bran who sent me the story has these comments:

That article links to the Daily Sabah, a now confiscated Turkish government mouthpiece. If I ranked news reliability it might look like this:

1- Certainly sensational and obviously false or misinformation.
2- Hearsay and conspiracy orientated.
3- Unverified source, not completely reliable but quite possible.
4- Based on fact and sourced, but likely presented for propaganda.
5- Straight facts from a reliable source.

My takes is that Turkey is prepared to challenge the US relationship, and this is another signal. It is placed in a format that seems official but one that can later be discarded. The paper would not publish anything like that without official approval.

Mike “Mish” Shedlock

US Dollar Slides Following GDP Report, Yen Up 3 Percent

The US dollar index now down about 1%, recovering a bit of the initial plunge after the “unexpectedly” weak GDP report. Against the Yen, the dollar is doing much worse, down about three percent.

US Dollar Index Reaction to US GDP

US dollar Index  2016-07-29

US Dollar vs. Yen

Yen 2016-07-29A

Direction on the above chart is opposite the first. The Yen has strengthened about 3%. Some of that is due to a US GDP reaction, but the bulk of the move is on the heels of a market reaction to actions by the bank of Japan.

Traders expected more QE than the bank of Japan delivered this morning. For details, please see Wild Swings in Nikkei, Yen as BOJ Disappoints Markets That Expected More QE.

Mike “Mish” Shedlock

New York Fed 3rd Quarter GDP Nowcast 2.5%; I’ll Take the Under

The FRBNY staff Nowcast of GDP Growth for the third quarter of 2016 remains essentially unchanged at 2.5%.

The Atlanta Fed GDPNow forecast for the third quarter will occur after the BEA’s release of the “Underlying Detail” tables of the annual revisions, between August 2 and August 5.

Nowcast 2016-07-29A

I’ll Take the Under

With 2.5% as the current over/under line, I’ll take the under, way under.

Mike “Mish” Shedlock

GDP Revisions 2013-2015 by Quarter

Every year in July, the BEA releases a set of annual revisions.

As noted previously, a portion of those revisions are related to a construction spending data error that goes back ten years.

Let’s take a look at the revisions.

GDP as Revised

GDP 2016-07-29

  • 2013 Q1: +0.9 percentage points
  • 2013 Q2: -0.3 percentage points
  • 2013 Q3: +0.1 percentage points
  • 2013 Q4: +0.2 percentage points
  • 2014 Q1: -0.3 percentage points
  • 2014 Q2: -0.6 percentage points
  • 2014 Q3: +0.7 percentage points
  • 2014 Q4: +0.2 percentage points
  • 2015 Q1: +1.4 percentage points
  • 2015 Q2: -1.3 percentage points
  • 2015 Q3: unchanged
  • 2015 Q4: -0.5 percentage points

Because of construction errors I was pretty sure 2015 would be revised lower and I expected 2014 to go up. The latter appears to be flat.

For 2013, upward revisions to inventory investment, exports, and residential and nonresidential fixed investment were partly offset by a downward revision to personal consumption expenditures (PCE).

For 2014, a downward revision to inventory investment, an upward revision to imports, and a downward revision to state and local government spending were offset by upward revisions to exports, PCE, and residential fixed investment.

For 2015, upward revisions to state and local government spending and to residential fixed investment, a downward revision to imports, and an upward revision to PCE were partly offset by downward revisions to exports and nonresidential fixed investment.

Multiple revisions for multiple reasons are in play. Constant revisions make predicting GDP a real crap shoot.

Mike “Mish” Shedlock




2nd Quarter Real GDP 1.2%, 1st Quarter Revised Lower to +0.8%; Bloomberg Spins This Mess Positive

Not only did real GDP come in on the low side, below nearly all consensus estimates, but first quarter GDP was revised lower to 0.8% from 1.1%.

Factoring in the downward revision, my second quarter guess of 0.8% was extremely close. For details please see GDP Forecast Roundup: GDPNow, Nowcast, Econoday, Goldman, Markit, ZeroHedge, Mish.

Bloomberg Spins This Mess Positive

The Bloomberg Econoday consensus estimate was 2.6% in a range of 2.2% to 3.4%.

Despite the huge miss compared to expectations, Bloomberg Econoday managed to put a positive spin on this mess.


Second-quarter GDP looks very weak at only a plus 1.2 percent annualized rate, but the details are positive. The biggest positive is consumer spending where growth, showing strength across readings, came in at a stellar 4.2 percent rate, more than double the first-quarter’s 1.6 percent rate.

A plus for the economy but a big negative in this report is slowing inventory accumulation which pulled down GDP by 1.2 percentage points in the quarter. But lean inventories point ahead to new accumulation which is a plus for future production and employment.

Another negative in the report is a reversal in residential investment, which had been running in the double-digit zone but which fell at an annualized 6.1 percent to pull down GDP in the second quarter by 2 tenths. A central concern remains nonresidential fixed investment, falling at a 2.2 percent rate and pulling down GDP by 3 tenths in the quarter. Weakness here points to weakness in business confidence and trouble ahead for productivity growth.

Recent History

The first estimate for second-quarter GDP is expected to come in at plus 2.6 percent for a sizable gain from first quarter growth of 1.1 percent which was held down by severe weakness in nonresidential fixed investment. Retail sales rose sharply in the second quarter and are expected to feed strong gains for the consumer spending component, offsetting what is expected to be continued weakness in business investment, slowing in residential investment, and slowing in inventory accumulation. The GDP price index, reflecting energy prices, is expected to accelerate sharply, to plus 1.8 percent from 0.4 percent in the first quarter.

Inventory Madness

The inventory-to-sales numbers remain in the stratosphere so it is beyond absurd to spin inventories as a huge positive.

On July 12, Bloomberg noted the “success” in inventory reduction. Here is a chart of that “success”.

Overall Inventory-to-Sales Ratio

Inventory-to-Sales 2016-07-12

For more details and three more inventory-to-sales charts, please see Wholesale Trade: Inventory-to-Sales Ratios Extremely Elevated.

This Econoday writer is a real “gem”.

Three Consecutive Quarters of Weak GDP

The last three quarters are 0.9%, 0.8%, 1.2%.

Real GDP Historic Trend

real gdp ds1

Real GDP Compounded Rate of Change


The preceding two charts courtesy of Doug Short Q2 GDP Advance Estimate: A Major Downside Surprise.

Surprises Galore

As posted yesterday …

  • GDPNow 1.8%: July 28 GDPNow Forecast Sinks to 1.8% Following Advance Economic Indicators Reports
  • FRBNY Nowcast 2.2%: July 15 GDPNow and Nowcast Forecasts Tick Up 0.1 Percent; Diving Into Interesting Details. The NY Fed had a blackout due to the FOMC meeting. It normally reports on Friday so its report is stale. I am confident its report would have been lower today had it made an update.
  • Goldman Sachs 2.4%: Zerohedge tweeted earlier to day that Goldman lowered its forecast today from 2.6% to 2.4%.
  • Bloomberg Econoday Survey 2.6%: The Bloomberg Econoday consensus estimate is 2.6% in a range of 2.2% to 3.4%.
  • Wall Street Journal Survey 2.6%: July 28 – Gross domestic product, a broad measure of economic output, is projected to have advanced at a 2.6% annualized pace this spring, according to economists surveyed by The Wall Street Journal. The economy grew at 1.1% in the first three months of the year.
  • Markit Chief Economist 1.0%: July 6 is the latest I could find from Markit chief economist Chris Williamson as noted in PMI Services Essentially Flat, Non-Manufacturing ISM Jumps Huge
  • ZeroHedge 2%: I emailed ZeroHedge this morning to see if he had a guess. He does. It’s 2%.
  • Steen Jakobsen, chief economist and CIO Saxo Bank 1.6%
  • Mish: 0.8%

Straight up, Chris Williamson comes closest. Factoring in the downward revision, it’s closer to a tie between Williamson and I.

Looking Ahead

Should consumer spending falter for any reason, we will be looking at zero or negative GDP numbers.

Mike “Mish” Shedlock

Wild Swings in Nikkei, Yen as BOJ Disappoints Markets That Expected More QE

The markets expected the Bank of Japan to unleash lower yields further into negative territory at its Friday policy meeting.

Instead the board voted to keep rates unchanged and to maintain existing monetary base targets. But the BoJ did vote to increase equity ETF purchases and increased US dollar swaps.

This set of moves led to some wild moves in the Nikkei, and a 1.6% increase in the Yen vs. the US dollar.

Yen Surges

Yen 2016-07-29

Wild Ride in Nikkei

Nikkei 2016-07-26A

The initial reaction was hugely negative. That was followed by a rebound to break even, another plunge, then a rally back to the green, all in a short time span.

Saxo bank chief economist Steen Jakobsen pinged me the key takeaway was the doubling of its US dollar loan facility is an admission of a dollar funding crisis but otherwise the rest of the policy statement was weak.

The Sydney Morning Herald labeled the actions Bank of Japan’s fizzer.

The Wall Street Journal says Bank of Japan Takes Modest Easing Action.

“The BOJ moves to buy more exchange-traded funds, but leaves a key rate and purchases of government bonds.”

The wild ride in the Nikkei is no doubt due to the initial negative reaction coupled with the fact the BOJ will increase its ETF purchases from 3.3 trillion yen to 6 trillion yen.

Why not just buy every company and be done with it?

Mike “Mish” Shedlock