11 Sep 2018

Market Brief: will UK inflation support BoE’s rate path?

Sana Hanassi-Savari

Dealing team

We heard from a few Bank of England (BoE) speakers yesterday. BoE’s Vlieghe says there is increased evidence that tight labour markets are beginning to have upward effect on wages.

Today's data releases
  Key levels
      Support Resistance
09.30 UK inflation GBP/USD 1.3760 1.3987
11.30 NFIB small business optimism GBP/EUR 1.1205 1.1500
Market overview

We heard from a few Bank of England (BoE) speakers yesterday. BoE’s Vlieghe says there is increased evidence that tight labour markets are beginning to have upward effect on wages. He also noted that the Fed experience of reversing QE will also influence the level of the interest rate at which BoE starts to unwind its own QE programme, possibly implying that the BoE may start QE reversal sooner than its previous guidance would suggest. Vlieghe did however highlight that the neutral UK interest rate is very uncertain and he stressed that there is huge uncertainty around the rate path, with the risk that rates could go up faster or more slowly than currently envisaged. We also heard from the BoE’s McCafferty who said that the UK economy was holding up relatively well. These comments alongside Governor Carney’s hawkish comments from last week’s MPC meeting add more emphasis on today’s UK inflation release; the current May rate hike expectation sits at 62%. Whilst consensus is for a stable inflation figure of 3.0% year-over-year in today’s a release, a more aggressive number could see an impact on the pound and increase the probability of the next rate hike.

 

In the US, President Trump has proposed a $4.5trn federal budget for 2019 that seeks to reduce domestic programs such as Medicare in favour of higher spending on the military and immigration enforcements. The plans will see the deficit almost double that initially projected to $984bln in 2019 and raise $7.1trn over the next decade. Mr Trump said he would push for a “reciprocal tax” on imports against higher tariff countries without providing details and reiterated his $1.5trn infrastructure plan of which $200bln federal funds will act as seed funds to incentivise further spending by state and local government as well as the private sector.

 

Back to the UK and according to documents seen by Bloomberg, EU officials will hold a discussion this Thursday on the options for a future trade deal with the UK post Brexit. The meeting looks to discuss the mobility of workers and how cars, chemicals and food safety are regulated in the internal market.

 

The day ahead

Looking at the day ahead, we have the inflation release in the UK this morning. This release includes the consumer price index (CPI), the retail price index (RPI) and the producer price index (PPI). In the US we have the January NFIB small business optimism print. Away from data, Fed’s Mester is due to speak in the afternoon on monetary policy and the economic outlook. 

 

Thought of the day

Brit Watch. Four years since Elise Christie was disqualified in all three of her events she finally has the chance to write a happier chapter in Olympic history today. The Scot is the current short track speed skating world champion and world record holder over 500m (which she set in her heat on Saturday), but knows the home crowd will be against her in the sport's spiritual home. Looking to kick start GB’s medal haul, Christie has potential to account for more than half of Britain’s medal target (five expected at these Games) with the 1000m and 1500m yet to come. In markets, many will be looking towards the UK CPI figure released at 9:30 to see if this can kick start a good run of data the UK. To take advantage of any potential volatility, please call you Investec dealer on 0800 055 6339 today.

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 2018.