European markets will get their first look at some meaningful data on Wednesday as the quiet start to the week makes way for one of the busier session. It will be the UK that takes the centre stage as we get unemployment numbers as well as the press conference for the quarterly inflation report from the BoE. Today also sees the return of meaningful data to come out of the US with mortgage applications readings and Fed members speaking a little later in the day but there is no doubt we will be looking to the UK for the headlines this morning.
Inflation predictions and growth forecasts for the UK will be the major focus when Mark Carney sits down to deliver the quarterly inflation report today. The inflation issue is of course a huge one and is not just a problem in the Eurozone. The UK as we know has seen a continued fall in the headline CPI figure over recent months and this will of course be a will be a cause for concern for Mark Carney and the BoE. We must always look at both the headline reading and the core CPI figure however.
The headline figure is likely to see more falls in the near term as it includes things like energy and food prices. Oil has seen a steady decline over recent weeks, so the subsequent fall in petrol prices is likely to hit the headline figure. However the core reading that strips out energy price fluctuations and instead focusses on more domestic prices should be a little more resilient. This is what Mark Carney will be hoping to show later today.
Then there will also be the stagnant average earnings number, this is the figure interest rate decisions are now based on and it seems very much like this stubbornly low number will stop a rate hike for at least another 9 months. A prediction on when we might see a rate hike is another focus the markets will have on today’s press conference and anything that hints on an earlier than expected hike will be met with negativity across equity markets and would see strength in the sterling.
However the banks mandate has always been to keep inflation around the 2% target and rate and while we continue to move away from that benchmark there will always be comparisons to the Eurozone and the ultra-low inflation seen by the ECB. While things are nowhere near that bad for the UK from a CPI and growth point of view Mark Carney will still want to see the rate of decline in the headline CPI reading slow and for the core CPI number to start to hold firm.
Mark Carney is also likely to be questioned over the new “too big to fail” rules that have been bought in when he holds his press conference. Carney, who is also chairman of the global regulator the Financial Stability Board (FSB), has worked with other members too set up rules that mean a situation like the 2008 credit crunch can never happen again and taxpayers will never have to foot the bill for banks that are deemed “too big to fail”. Mark Carney has called previous systems put in place grossly unfair so this plan is likely to come into focus during tomorrows inflation report.
Market movement today will all depend however on whether we see the tone from the BoE as dovish or hawkish. With expectations that the governor will signal that rates will stay on hold until at least mid 2015 then this dovish tone is likely to buoy equity markets and leave the pound at risk of a fall. Ahead of the open this morning we are expecting to see the FTSE 100 open lower by 6 points and the German DAX lower by 20 points.
DISCLAIMER: Any views or opinions presented are solely those of the author and do not necessarily represent those of Alpari (UK) Limited, unless otherwise specifically stated. This content does not constitute investment advice.