Market Brief: Yellen to deliver her last US rate hike

11 Sep 2018

Sana Hanassi-Savari

Dealing team

Yesterday’s UK inflation figures showed prices in November rising by more than expected to a six-year high of 3.1%.

Today's data release
  Key levels
09:30 UK employment report   Support Resistance
10:00
EZ industrial production GBP/ USD 1.3220 1.3520
13:30 US inflation data GBP/ EUR 1.1135 1.1565
19:00 Fed rate decision and press conference      

Market overview

Yesterday’s UK inflation figures showed prices in November rising by more than expected to a six-year high of 3.1%. As such, Bank of England Governor Mark Carney will now have to write a letter to Chancellor Philip Hammond explaining why inflation has overshot its 2% target by more than 1%, which will be published alongside the next Inflation Report in February. Transport was the biggest contributor category to the headline rate of inflation. Meanwhile, PPI figures showed that input cost inflation similarly beat expectations by rising 7.3% on the year (consensus +6.3%, Investec +6.7%) from 4.8% in October. While factory gate price inflation was in line with consensus, the sharp rise in input cost prices tentatively indicates that there could be strong inflationary pressures in the pipeline. Sterling strengthened against the USD to 1.3350 in the lead-up to the release and momentum continued after the figures were published to 1.3370.
Moving onto the continuing Brexit rhetoric, the EU chief negotiator Barnier cautioned the UK against going back on the agreements made last Friday, noting “we will not accept any backtracking from the UK”. Furthermore, the EU Parliament lawmaker Guy Verhofstadt tweeted that it was time for the UK government to “restore trust” after the “unacceptable remarks” by Brexit Secretary Davis who noted the Brexit deal last week was more of a “statement of intent”. Nonetheless, the draft European Council guidelines seems to suggest trade talks between UK and EU could formally start in March 2018.
In the US, momentum on the tax plans appears to be going reasonably well. A few House officials noted that the conference panel could deliver the written agreement on the final tax legislations by Friday. Whilst, the House Majority leader McCarthy also noted that the goal is for the House to vote on the reconciled tax bill next Tuesday (19th December), which is also confirmed by Senator Reed of Rhode Island, who noted: “the time frame of a vote next week is very realistic”. 

The day ahead

We have a pretty busy day ahead with US inflation and the long-awaited FOMC meeting, which also includes Yellen’s last press conference. A 25bp rate rise is pretty much nailed on for today’s meeting and therefore the focus is likely to shift onto Yellen’s speech and the Fed’s economic projections, which includes the dot plot (a graph showing where Fed members believe future rates will be). US inflation is an important release to watch out for going forward as it will play a key role in rate decisions in 2018.
Other data releases include the final November inflation revisions in Germany, October employment data in the UK, and October industrial production data for the Euro area. Finally, President Trump may speak on tax reforms today and Germany’s Merkel and SPD will also start formal coalition talks. 

Thought of the day

2017 has certainly been a year to remember. It began with the inauguration of Donald Trump
which came in the midst of an anti-establishment tide that threatened to change the political
landscape on both sides of the Atlantic. The results of the French, Dutch, UK and German
elections that followed certainly threw up some surprises, leaving the leaders of both the UK
and Germany clinging on to power. In between, we’ve also seen the UK formally serve notice
on its membership of the European Union while more recently, the Bank of England raised
interest rates for the first time in a decade! If 2017 was merely the appetiser, we can only
imagine what lies in store for 2018. To help lift the cloud, we created a podcast of a conference call with our chief economist to discuss what themes are likely to dominate next year, to hear what was said, visit the link below.

Discover how our Treasury team can help your business

Live FX graph

Live FX graph

Live FX rates

Live FX rates

 

 

  • View important information

    This Market Commentary is provided for information purposes only and should not be construed as an offer, or a solicitation of an offer, to buy or sell any related financial instruments. This commentary has not been prepared in accordance with legal requirements designed to promote independent investment research. The information contained in this commentary has been compiled from sources believed to be reliable but no representation or warranty, implied or not, is provided in relation to its accuracy, suitability or completeness. Any opinions, forecasts or estimates constitute a judgement as at the date of this report and do not necessarily reflect the view of Investec Bank plc ("Investec"), its subsidiaries or affiliates. This commentary does not have regard to the specific investment objectives, financial circumstances or particular needs of any recipient and it should not be regarded as a substitute for the exercise of investors' own judgement. Investors should seek their own financial, tax, legal and regulatory advice regarding the appropriateness or otherwise of investing in any investment strategies and should understand that past performance is not a guide to future performance and the value of any investments may fall as well as rise.This commentary is confidential and may not be disclosed or distributed to any third party without the prior written consent of Investec. Investec Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and a member of the London Stock Exchange. Registered office 2 Gresham Street, London, EC2V 7QP. Investec Bank plc 2014.