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UK inflation has jumped yet again this time hitting 3.1%, a huge 1.1% above the Bank Of England inflation target, meaning that the Governor will have to write a letter to the Chancellor explaining the reason for the further rise in prices, this happens when inflation is either above 3% or below 1%.
A lot of the initial damage was done after the EU referendum and the subsequent fall in sterling: a lower currency will drive up the cost of goods and services.
Yet again Brexit is the cause of numerous problems for the general public in the UK, as despite employment being high wages remain incredibly lows and show no signs of moving. With inflation now at 3.1% and interest rates moving higher last month, the cost of living continues to rise as the UK struggles its way through Brexit negotiations. It is expected that wages will have risen by 2.5% during the same monthly period, we will see this when the UK jobs report is released.
The big question is that has inflation now peaked? Mark Carney had previously stated that he believed that inflation had peaked back in October and November, however this figure shows an increased move in overall prices. It is food price inflation that is the key issue going forward, especially as we head into the Christmas period with many households looking to put food spending on credit. The rise in food prices is the key factor behind a concerted rise in the cost of living, and has a knock on effect as many save in other areas when food prices increase.
With Brexit negotiations hitting a key milestone last week by agreeing on the divorce deal, it is still clear that talks are moving at a snail’s pace. What we as analysts often ask when numbers like this are released is just when will it start to turn around - although it is expected that in Q1 inflation will fall back towards the 2.5% level. However, the biggest question mark is over just what post-Brexit Britain looks like, and the clear answer to that is that nobody knows.
The unanswered questions surrounding Brexit continue to rise and for the electorate this means that things are likely to get worse before they get better, however just how much worse is yet to be known. Brexit could still give us a deeper recession than the financial crisis of 2007-08, or it could be the best thing that happens to the country.
The rest of today’s session has been relatively quiet with big pieces of data, market across Europe have moved higher and have helped to lift US stocks in the afternoon as the US indices entered the fourth consecutive day of gains. In currency markets the US dollar was little changed against its major counter parts, however gold prices were big movers as the precious metal continued to fall away after breaking some big downside levels at the back end of last week.
Bitcoin
Bitcoin! It’s all anyone wants to talk about, which is making it one of the most boring subjects out there at the moment. Yes it went up a lot and yes it will probably come down a lot at some point. Yes it’s now trading on some real exchanges, but yes it’s still totally unregulated. All of these questions with answers that don’t particularly help anyone. It's mainstream, it’s what everyone is talking about, and as one colleague of mine has already said today, 'the miners can’t mine quick enough for the amount of demand that is currently out there, so an old fashioned problem on a newfangled product that is causing prices to rise'. Will the bubble burst? Probably. When will it happen? Who knows! The interesting thing is that there is the beginning of an: 'if you can’t beat them join them' mentality for those who have previously been in the sceptical camp.
We are starting to see a few technical levels appearing but nothing concrete enough to start trading on. These levels tend to be areas that Bitcoin stops moving higher and retraces somewhat, so only fuelling those traders looking to buy any dips. Current high on BTC/USD at $17,369 is the next upside level we now have to look out for, but it could be very short lived.
To me Bitcoin is an anti-establishment tool, an instrument that will profit when there is chaos and fall when the establishment is on top. Today the SEC came out with a warning when trading Bitcoin, something they also did with the dotcom boom, however they did that in 1996, a number of years before it was good advice and 40% before the top of the market.