Analysis

In April the ONS reading for CPI was that UK prices had gone down (deflation). In the height of the recession inflation peaked at over 5%, significantly above the Bank of England’s 2% target. The governor at the time, Mervyn King would write a letter to the Chancellor explaining why inflation was overshooting the central banks remit. With inflation high and asset prices appreciating, some analysts believed that interest rates would need to be increased from the record low of 0.50%. The…

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Overnight the Bank of Japan Governor Kurodo said that “the Yen may not weaken much further on real effective exchange rate basis”. The comments led to an immediate strengthening in Yen crosses, as traders interpreted the comments; that the BoJ will not be easing further in the near future. USDJPY session high was 124.65, following Kurodo’s comments the currency pair to session lows of 1.2245. The governors comments were retracted by a Japanese official, in what has be…

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The US Dollar has been bid since the release of Fridays employment report from the US. The Non-Farm Payrolls headline figure of +280,000 jobs in May, with the unemployment rate ticking slightly higher to 5.5%. There was a gradual increase in average hourly earnings, up by 8 cent to $24.96, which should eventually put further pressures on uptick in prices. This adds to the argument, that Janet Yellen should begin the gradual tightening of policy before the year end. This is in contrast…

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Traders are awaiting the US employment figures for May at 13:30pm London. The median expectation is for the headline Non-Farm Payrolls to be +225,000 jobs (+223,000 in April), and for unemployment rate to remain unchanged at 5.4%. The Fed has signalled wage growth and the tightening labour market to be the signal to tighten monetary policy. The market consensus is for a rate hike in September 2015, however Christine Lagarde (IMF) urged the Fed to hold off until 2016 before beginning to tight…

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The Markit / CIPS UK Services PMI missed analysts’ expectations; the reading was 56.5 in May compared with a strong figure of 59.6 in April. The release for May was the ninth consecutive month above 50.0, signifying expansion. The Services PMI figure followed Tuesday’s Manufacturing PMI release that also missed the analyst consensus. The Markit release highlighted that the outcome of the UK election had reduced business uncertainty. A key point that the market seems to have…

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In the FX markets Sterling (GBP) weakened against the other major currencies as the Markit / CIPS UK Manufacturing PMI missed expectations. The release from Markit showed manufacturing output had expanded in May, with the index at 52.0 compared to the revised April figure of 51.8. Manufacturing is only a small component of the overall UK GDP, with services being the major contributor to the economy. Following the release Sterling was offered against the US Dollar, trading to down below…

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On Tuesday indices in Europe and the US were weak after the long weekend, with the USD bid across the board, commodities were softer. During Wednesday morning’s session, the US dollar has pulled back from Tuesdays highs against the majors; EURUSD: 1.0920 GBPUSD: 1.5422 USDJPY: 123.00 The strong data from the US on Tuesday reminded traders that that the “data dependent rate hike” from the Fed, might not be as far off as had been expected. Openin…

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Traders in the UK and US returned to their desks on Tuesday, following a three day weekend, due to public holidays on Monday. The US Dollar has surged from the levels of last week, with EURUSD trading to a 1.08 handle, and GBPUSD to 1.53, with USDJPY trading over 123 for the first time since the summer of 2007. Strong US data, is fuelling the long US dollar, with commodities on the back foot: WTI Oil: $59.06/barrel Spot Gold: $1189/oz…

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At the meeting the committee voted to leave interest rates and asset purchases (QE) unchanged at 0.50% and £375bn. Today’s release of the Minutes of MPC meeting 7 and 8 May 2015, were as analysts had expected that the members voted unanimously to stay unchanged. The headlines from the minutes were that two MPC members decision were “finely balanced” between unchanged and raising interest rates. The market impact from the minutes was minimal, the release was as the mar…

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The ONS will release their latest reading of UK inflation at 9:30am this morning, and there is a strong chance that the reading will be negative. The previous inflation reading was zero, in short prices measured on a basket of goods, were unchanged from the previous month. The Bank of England’s mandate is to target a 2% inflation rate; during the financial crisis this was consistently overshot peaking above 5%. The Governor, Mervyn King would write a letter to the Chancellor explaining…

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Crude prices have move higher from the low 40 dollars in March, with WTI now stabilising around $60/barrel. The market has found support after the sustained and dramatic freefall, with the shift after the oversupply. Over the weekend there were reports that Islamic State (IS) had seized the city of Ramadi, previously a report that the group had expanded their grip within the volatile region would have pushed oil prices significantly higher. Though the announcement put a slight bid in…

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At 10pm on Thursday 7May the BBC exit polls were released, defying the opinion polls from before the election, predicting the Conservative Party would gain the majority of seats. Sterling rallied in the FX markets nearly 2 cents (1.5245 – 1.5447), as traders repositioned for the exit poll outcome. The expectation in the run up to the election had been for a coalition government, however the permutation’s of government varied, but a Conservative majority was a distant outlier.…

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The Bank of England released their inflation report following a self-imposed 6 week quiet period for the UK general election. The Bank revised their estimates for growth in 2015 from 2.9% 2.5% and 2.9% to 2.6% in 2016. At the same time the report highlighted their view that inflation was expected to rise notably, once the short-lived factors such as fall in crude price dissipate. The base interest rate has been at 0.50% for the last 6 year, with inflation for multiple years overshootin…

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