The Day So Far…

UK inflation data has been the main event of the morning with the headline Y/Y reading coming in at 2.9% vs Exp. 2.8%, matching the high in May and putting us back at levels not seen since the summer of 2013. Perhaps more importantly the core reading jumped to 2.7% from 2.4%, the highest rate since December 2011 and a rate that will likely vindicate the stance of MPC hawks Michael Saunders and Ian McCafferty who have both stuck to their view of calling for an immediate rate hike in recent months. The ONS stated that it was rising prices for clothing and motor fuels that were the main contributors to the August lift.

UK Core inflation Aug 2017

As a result of the report, GBP vaulted higher and in combination with the vote on the EU withdrawal passing the 2nd reading in the Lower House of Parliament, Cable futures have retested an important resistance level at the early August high of 1.3297. Whether or not the Pound can continue to rally this week is dependent on two more events the first of which is tomorrow where the latest wage data will be watched with great interest. Secondly, the Bank of England are set to announce their latest decision on interest rates this Thursday and despite the surprise in today’s figures I still don’t foresee any major changes to the vote split but rather a material upgrade to the tone of discussions regarding persistent price pressures.

A quick look elsewhere and following the record close on the S&P 500 yesterday the moderate risk on theme remains. The latest news on North Korea is that the UN have approved new sanctions to cut imports of refined petroleum, ban textile exports and a strengthening of inspections of ships that are believed to be carrying cargo in breach of sanctions. However, the more harsher conditions proposed by the US, such as banning all oil imports and freezing Kim Jong-un’s assets, was rebuffed by the likes of China and Russia. To little surprise a North Korean ambassador has condemned in the strongest terms and categorically rejected the latest UN resolution so although the Western front remains clear for the time being the situation still requires some degree of vigilance moving forward.

The Day Ahead…

In terms of the strategy for this afternoon the calendar remains quiet as the bulk of the major economic data is not due until the 2nd half of the week (US CPI/Retail Sales). As such, we continue to follow the trends that materialised on Monday with a long entry in the S&P and consequently short in T-notes. Although WTI crude was extremely volatile yesterday the backdrop of demand not being impacted by Hurricane Irma as much as some had feared keeps us feeling more confident of the long.

 

Anthony Cheung
Anthony is a leading market commentator with over a decade of experience accumulated as Head of Market Analysis at a leading news and analysis organisation, and now a Director of Amplify Trading.