Could the UK inflation figure heighten hopes of a rate rise

Yesterday’s markets

18th August 2015

  • CHF Retail Sales y/y: -0.9%
  • CAD Foreign Securities Purchases: 8.51B
  • US Empire State Manufacturing Index: -14.9
  • AUD Monetary Policy Meeting Minutes

There was some early morning Sterling strength as GBPUSD traded at a fresh two week high. The main reason for the early bout of price activity was the ongoing interest rate debate in the UK. Over the weekend, BoE policy maker Forbes said in one of the broadsheet papers that keeping rates at a record low for too long may damage the UK’s economic recovery. These comments were then echoed by fellow member David Miles yesterday morning. It will be interesting to see how this translates at the next BoE meeting.  The market is currently pricing in February as a possible date for a hike but data will continue to be watched especially inflation with oil back on the slide.

Data in the US was disappointing. The Empire State manufacturing activity collapsed to its lowest level since 2009. Regional manufacturing activity from the New York Fed came in at -14.92, far below expectations of positive 4.50 and the lowest reading in six years. In the survey, 34% of respondents said conditions had worsened. Whilst this isn’t a major reading, it will be interesting to see how other regional manufacturing numbers post and how these will translate into the national numbers.

Today’s markets

17th August 2015

  • UK CPI y/y
  • UK PPI Input m/m
  • UK RPI y/y
  • US Building Permits
  • US Housing Starts
  • NZD GDT Price Index

Looking to the day ahead, The consumer price index (CPI) from the UK will be the focus come 9.30am. With price inflation currently being flat and expected to remain at 0%, this gauge is one that is being watched by the Bank of England as an indicator into when to raise rates.  The target of the BoE is for this to be at 2% and as Mark Carney, the head of the central bank has outlined, he expect prices to start increasing later this year but the latest slide in oil price could hinder this.