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Carney to the rescue?
Hands up for continuity. Let’s face it, it’s something we all like. Something
we all particularly need. Going back to when we were children, we had this need
for familiarity as it made us feel safe and secure.
We have carried on that same
need into our adult life. Speaking for myself, and I have no doubt there are
many other people out there, who would agree on the importance of having a
“local” (for those non-British individuals a “local” is basically a pub you
always go to). A “local” is like a fortress of solitude where we can show our
face on a regularly basis and always be welcome and greeted with comfort.
So, when you are about to go
through a time that is full of uncertainty and unknown, familiarity in some way
or form is the perfect medicine to take. It will give you that warm hug when
you feel like you don’t know what the overall outcome will bring.
So, with Mark Carney’s confirmation that he will
indeed stay on as Governor of the Bank of England, till January 2020, is there
really any surprise that as the UK literally stands on the edge of the unknown,
those in positions of power have agreed to keep a familiar face at the forefront
of one of world’s most prestigious Central Banks?
But, will it really make a difference and help
steady the ship during what will be wave after wave of volatility?
Well, for starters Mark
Carney has never been a man to hide in the shadows. Having spent 13 years with
Goldman Sachs he went on to become the deputy at the Canadian Department of
Finance. He then went on to become first the Deputy Governor and then the
Governor of the Bank of Canada. As governor he really made his mark as he was
credited as being the major driving force in helping Canada avoid the worst
impacts of the 2007 financial crisis.
Then, he went on to become
the first non-Briton to become the Governor of the Bank of England.
Under his watch we’ve seen
the aftermath of the Brexit vote which caused UK inflation to skyrocket. All of
which also lead to the BOE to raise interest rates for the first time in ten
years in 2017, followed by another rate hike in August 2018.
Never afraid to share his
opinion, Mark Carney has frequently spoken of the potential negative affect the
Brexit will have on the UK economy, where he has been attacked by some Brexit
activists going against him for trying to influence the vote back in 2016 and
spread fear.
However,
when Chancellor Philip Hammond addressed MP’s about Carney’s extension to the
end of January 2020, he said that this appointment would “help support
continuity” for the UK economy during “a turbulent period”.
Or is it just a facade in the way of the
barrenness that surrounds the economic climate of the moment?
But there are those who will
argue that really Carney’s extension is more of a political move by a
government that has faced several resignations of key players, and in order to
buy themselves more time to find a replacement for the role. And who would want
to take the role of Governor of the Bank of England, in the current climate,
where there is no real indication on what will happen when the divorce between
the UK and the EU is settled, in March 2019. Will there be a deal, or won’t
there? No one – and I mean no one – actually knows.
There is no doubt, Carney –
like Draghi and Powell – can indeed move the market. But for being able to
offer stabilization for the sterling, that would be near impossible.
After seeing the BOE raising rates in August 2nd,
the GBP bulls stayed silent and inactive while the sterling remained under
pressure. This means both Carney and his fellow BOE members have no power
currently to influence the currency’s direction. The market at this time is not
too focused upon what actions the BOE may take with interest rates or monetary
policy. However, they are transfixed by the latest political setback the UK
government may face, or what obstacle remains or is removed from the ongoing UK
and EU Brexit negotiations.
Better the devil you know
Carney is not at the
negotiating table with the EU, so for when it comes to influencing the current
market volatility for the GPB, he’s pretty much powerless. What he can do of
course is continue to make statements about the dangers of the UK’s exit from
the EU, but we’ve heard that plenty of times already, so really his talk of
doom and gloom is old news.
At the end of the day, Mark
Carney staying on will not help support the GBP stability. Not that it’s his
fault, he simply isn’t able to do so with a market addicted more to political
developments than economic ones. As good as he is, this move is to support the
current UK government and, as they say, it’s often a case of “better the devil
you know”.
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By
James Trescothick, Chief Trading Educator at Stratton Markets