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Deflation dampens UK rate hike expectations

  • UK CPI y/y: -0.1%
  • UK PPI Input m/m: 0.2%
  • UK RPI y/y: 0.7%
  • EUR German ZEW Economic Sentiment: 10.4
  • US CPI m/m: 0.2%
  • US Core CPI m/m: 0.2%
  • US Industrial Production m/m: -0.2%
  • US Mortgage Delinquencies: 4.99%

Inflation figures were the focus of the markets yesterday as the UK and the US both posted their relative inflation results.  Firstly the UK released their gauge in the morning, with it landing in line with forecasts as it remained in negative territory at -0.1.  This is the first time the index for consumer prices has fallen twice in a row, since the index was created in 1997.  As this came out as expected, there was no shock felt for the Pound but inflation still remains well below the BoE’s target of 2%, which as Mark Carney, the head of the BoE had stated earlier this month as global economies weaken, weighing on inflation.  This now further cements the Bank of England’s dovish outlook with expectations of the UK raising interest rates later next year if at all in 2016.

The monthly consumer price index posted from the US yesterday afternoon saw prices rise 0.2% for October.  Although this was an increase from the previous 0% reading it fell in line with what markets were expecting and as such didn’t see much movement for the Dollar as this data hit the wires.  The bigger picture does move more towards a rate hike come the December Fed meeting as inflation is one of the gauges the FOMC are monitoring with signs of an upward movement.  Also from the US yesterday, industrial production came out and unexpectedly stayed in contraction for October.  The gauge missed expectations of 0.1% and came out at -0.2%, illustrating the negative impact of lower oil prices and the strong Dollar is having on the largest economy in the world.

  • US FOMC Member Dudley Speaks
  • US Building Permits
  • US Housing Starts
  • US Crude Oil Inventories
  • US FOMC Meeting Minutes
  • NZD PPI Input q/q
  • JPY Monetary Policy Statement

With focus still on the events unfolding from the attacks in France over the weekend and the Germany vs Holland game called off last night, this in turn has seen the single currency fall against the Pound and now trading around two month lows yesterday.  The Dollar is now trading at seven month highs against the Euro, as uncertainty of these attacks still remain very prominent across Europe from ISIS.