The FTSE 100 remains well supported at the start of the week with the index higher by 5 points following a strong open. The pound is also rising, showing modest gains against its major peers.
Miners begin the week on the front foot
The best-performing stocks on the leading UK index this morning come from the mining sector with Glencore (LON:GLEN) leading the charge in rising more than 2% on the day so far. Anglo American (LON:AAL), BHP Billiton (LON:BLT) and Rio Tinto (LON:RIO) are all enjoying positive trade as the sector as a whole looks to add to recent gains. Worldpay is suffering with a case of the Monday blues, with the payment processing company languishing at the bottom of the FTSE 100 and adding to last week’s declines.
Economic data to drive the pound
With the Brexit bill awaiting the House of Lords to return on the 20th February following their recess, the pound is likely to be driven more by data on the UK economy than political developments this week. There are several scheduled releases that could prove important over the coming days, but given the recent focus on inflation, Tuesday’s CPI figures could well prove to be the most pertinent.
Higher inflation to increase rate hike pressure
The Bank of England (BoE) refrained from making any significant hawkish alteration to its stance following the recent meeting of the Monetary Policy Committee (MPC) which included the quarterly inflation report, but a strong reading tomorrow would ramp up the pressure to do so. A survey of economists by Bloomberg show that 87% believe that the next move in UK rates will be an increase, up from 65% last month. This is a remarkably high figure given the likely imminent triggering of Article 50 and with the ensuing uncertainty this will cause it seems unlikely that the BoE would look to tighten policy anytime soon, even if it moves above the 2% threshold.
CPI to test MPC’s limited tolerance?
Accusations that the rate-setting body were too aggressive in easing following the referendum have been met with fairly strong rebuttals and despite protestations that there is a limited tolerance for above target inflation, the consensus expectation for future rates appears to be unrealistically high. Furthermore, despite MPC voting member Kristin Forbes adopting a hawkish rhetoric during her speech last week, her comments lost some weight when it was announced shortly afterwards that she would be stepping down from the role in the summer. Consensus estimates for the CPI Y/Y are for a rise of 1.9% which would still be below the central bank's threshold and it would likely take a substantially higher reading to cause a sustained rally in the pound.