The Day So Far…

GBP remains in focus with today’s UK wage data really summarising the difficult position faced by the members of the Bank of England’s MPC. UK policy members find themselves weighing up anaemic wage gains over the three months to July against the backdrop of rising inflation, a situation that has seen the real value of people’s earnings fall some 0.4% over the last year. Hardly the best timing for Apple to drop their most expensive iPhone ever!

Neg UK wage growth Sept 2017

In the context of the two key data points seen in the last 24-hrs I think the risk of an overtly hawkish communication from the BoE minutes tomorrow have diminished and although I expect the tone to have altered the risk of an actually shift towards supporting the hawks (Saunders/McCafferty) is unlikely and so I continue to look for a 7-2 vote split. As a consequence of the latest wage data Cable has pared back more than half of the gains seen on yesterday’s inflation data where the core reading rose to its highest since December 2011. Unsurprisingly the Times Shadow MPC showed a close call to raise rates immediately but in context this was before today’s numbers were known and on the balance the replica committee still voted to stay pat on rates but to signal a rate rise in future.

Looking elsewhere comments from US Treasury Secretary Mnuchin showed an unexpectedly strong diplomatic escalation in threatening the Chinese with new sanctions should they violate the new UN resolutions. Although I see this as an empty threat the prospect of the US losing its biggest trading partner carries significant tail risk if this scenario ever materialised but in reality the prospect of this I feel is relatively small. Meanwhile, reports from South Korea show movement north of the border suggests the regime maybe gearing up for another missile test so although the market has largely priced in these type of situations it still has the possibility to create a short-term risk-off reaction, especially in the context that new research has shown the recent nuclear test was double the size previously thought and in fact 15 times larger than the weapon used on Hiroshima in 1945.

The Day Ahead…

Looking ahead, today should be more interesting from a calendar perspective with the key inflation readings, that being PPI today and CPI tomorrow, the outcome of which will be highly influential to market pricing for a December rate hike from the Fed (currently FFR futures prices at 41%). In the interim period we also get the latest DoE oil inventory report with last night’s API data showing the largest ever draw-down in gasoline (-7.896mln) while the headline printing at a build of 6.181mln. From a broader perspective it is hard too take to much from these outlying figures as they are largely a reflection of the impact from Hurricane Harvey and the report will likely be impacted for several more weeks to come. None the less the release itself should still carry enough short-term weight to drive direction for the afternoon.

 

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.