Today's data release

 Key levels
09:30UK Unemployment rate SupportResistance
12:00US MBA Mortgage Applications 1.31631.3440
13:30US PPI 1.09631.1247
Market overview

Yesterday’s main headline news that really got the market moving was August’s headline CPI inflation number which was firmer than expected. The targeted measure rose to 2.9% (YoY) from 2.6% in July and was slightly stronger than the market and ourselves had expected (consensus 2.8%). Contributing to the rise in CPI inflation were fuel and clothing prices. The ONS’ other measures of price inflation also firmed in August, with CPIH rising to 2.7% from 2.6% (consensus 2.7%) and RPI inflation strengthening to 3.9% from 3.6% (consensus 3.7%). Released at the same time were producer price data, here the figures were also slightly firmer than expected. PPI input prices rose to 7.6% (YoY) from a revised 6.2% in July (consensus 7.3%), whilst PPI output prices were recorded at 3.4% against a consensus of 3.1%.

It seems virtually certain now that CPI inflation will rise to 3.0%, or even slightly above, next month. Our forecasts suggest that this should prove to be reasonably near to its peak. Even so, not all of the pound’s 13% decline since June last year has yet been felt on the high street, so it may take a while before inflation heads decisively towards its 2% target. Sterling firmed on the back of the data, while the UK yield curve rose modestly across the board. Markets are paying a considerable degree of attention to Thursday’s MPC announcement. This is not so much due to fears that rates will rise this week, indeed our expectations are that this is off the cards this time. However, it does reflect the realistic risk of the committee giving a hawkish steer and underlining the message that rates may have to rise at some stage in the not too distant future. 

With GBPUSD trading over $1.33 at 12-month highs, the markets will be looking at the UK unemployment data due for release at 09.30 where the unemployment rate is expected to remain at 4.4%, aside from headline unemployment, the wage data will also be closely watched. 

The day ahead

Following yesterday’s inflation numbers the markets will be almost exclusively focusing on tomorrow’s Bank of England announcement. Will the MPC feel the need to make hawkish comments on the rate of inflation in the UK or will they state that this is merely a temporary blip higher in the headline number and take the wind out of the move we’ve seen in sterling.

Thought of the day

The much-anticipated release of the new iPhone models is finally here, Apple introduced the iPhone 8 and iPhone X! Available for pre order in the UK on October 27th the iPhone X will set you back just under £1,000. The updates are plentiful: wireless charging, edge to edge display, photo studio camera capability, facial recognition password, avatar emojis and more. Innovation has become paramount to businesses success and here at Investec that is no different, our new Payments proposition on Treasury Online is live and waiting for you to log in. It may not be able to turn you into a talking Panda (yet) but loading beneficiaries and sending out payments is a doddle. For more information please contact your Investec Dealing team to discuss further on 0800 055 6339.

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