Inflation data released for the UK yesterday showed that the cost of living has reached its highest level since 2012 with more increases set to come according to Bank of England Chief Mark Carney.
Financial markets are now very confident that the Bank of England will raise interest rates (by no more than 0.25% at the most) in November after the annual increase in the cost of living edged up from 2.9 to 3%. Figures for the month of September however, showed a drop from 0.6% to 0.3%. The market is pricing over an 80% probability for a November hike and more than 1 rise next year.
The rise in inflation has come at a precarious time as borrowing by consumers has peaked once again, suggesting that over the medium term, interest rate rises will put further pressure on already tight household budgets.
This morning at 0930 am we have Labour data from the UK where the unemployment rate is expected to have remained put at 4.3% along with earnings at 2.1%.
On Thursday we look to the retail sector where the organisation, National Statistics, will be releasing the most recent retails sale data for the UK.
Theresa May met with Jean-Claude Junker in Brussels this week in a last-ditch attempt to save Brexit negotiations from turning sour. Reports suggest that that both sides are committed to accelerating Brexit negotiations, except nothing seems to have been confirmed.
Some reports suggest that the UK Government sees the potential for the negotiations to collapse after this week’s EU Summit on Thursday.
Over the pond, reports suggest that John Taylor is President Trump’s favourite contender to succeed Janet Yellen as Fed chairman which may be extremely US Dollar positive as he is by far the most hawkish. Other shortlisted contenders include former Fed board governor Kevin Warsh, the current Fed Chair Janet Yellen, Trump’s chief economic adviser Gary Cohn and Fed governor Jerome Powell.
Mr John Taylor is the advocate of interest rate setting tools/formula that Central banks have been using since the 90’s; a model that would put current US interest rate at 3 times higher than they currently are. His rule, in simple terms, calculates an appropriate rate based on how far the central bank is from its unemployment goals and inflation targets.
Many believe that the Fed has been behind the curve for the past 3-4 years, so perhaps interest rates would be 3 times higher had they moved when the data suggest they should.
Later today, at 1pm we have a speech from FOMC Member Robert Kaplan followed by housing starts data at 1330 pm.
Inflation data from the Eurozone yesterday was pretty much in line with forecasts showing a reading of 1.5% for the year and 0.4% for the month of September. Other data releases have shown that Eurozone economic sentiment fall in October when a rise had been forecast and German economic sentiment has risen, but a worsening perception of current conditions has left the Euro trailing some its peers.
Today from the Eurozone there will be a raft of speeches from European Central Bank officials, starting with a potentially high-impact one from Mario Draghi where he is due to speak in Frankfurt, opening a conference on ‘Structural Reforms in the Euro Area’.
If Draghi’s comments consist of a positive outlook then the Euro may appreciate throughout the day.
9.00 am – Deadline for Catalonia to confirm if it has declared Independence or not
9.30 am – UK CPI (September): forecast to rise to 3.0% from 2.9% YoY and rise 0.3% MoM compared to 0.6% previously. ACTUAL 3% YoY, 0.3% MoM
11.00 am – Eurozone CPI (September, final): YoY expected to remain at 1.5% and MoM rising to 0.4%, ACTUAL 1.5% YoY, 0.4% MoM
11.15 am – Bank of England’s Mark Carney Speech: Carney says inflation hasn’t peaked yet and EU banks aren’t ready for hard Brexit
9.30 am – UK employment data: August unemployment forecast to flatline at 4.3%. Average earnings expected to rise 2% from 2.1% a month earlier
12.45 pm – ECB’s Peter Praet Speech
16.15 pm – ECB’s Benoit Cœure Speech
N/A – UK inflation report hearings
9.30 am – UK retail sales (September): sales expected to contract -0.2% MoM from 1% in August. YoY rate slows to 2% from 2.4%
09.30 am – UK Public Sector Net Borrowing (September) – Borrowing stood at £5.093 Billion in August, lower than previously estimated.
N/A – Fed’s Yellen Speech