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European Market Update: UK Inflation Moves Above BOE Target For 1st Time In Over Three Years

UK inflation moves above BOE target for 1st time in over three years

Notes/Observations

US Trump administration’s reform agenda appearing sidetracked by current FBI investigation

France presidential debate soothes the nerves that populism gaining momentum (Macron the perceived winner in showing; Far right Le Pen in 3rd)

UK Feb CPI data moves above BOE 2% inflation target for 1st time in over three years

Overnight:

Asia:

RBA Mar Minutes reiterated that keeping rates steady policy consistent with growth and inflation targets. Rising AUD currency would complicate economic transition. Wage growth, underlying inflation were expected to rise gradually

China Premier Li Keqiang: Will further open up its services, manufacturing and mining sectors to the outside world

Japan Chief Cabinet Sec Suga noted that G20 reaffirmed excessive and disorderly FX moves hurt economy and financial markets

Europe:

ECB’s Weidmann (Germany) reiterated view that current circumstances mean maintaining expansionary monetary policy was appropriate

Eurogroup Chief Dijsselbloem: No promise deal between lenders and Greece will be completed by next Eurogroup meeting on April 7th. Reiterated that some key issues still remain for Greek review

Greece Fin Min Tsakalotos stated that it had made progress in Greek talks; most of outstanding issues had been resolved

BOE’s Haldane (chief economist): pivot toward structural measures and less reliance on monetary policy is desirable

France Presidential debate

Elabe poll: Macron was most convincing in presidential debate; Melenchon 2nd; Le Pen and Fillon tied for 3rd

Americas:

Sec of State Tillerson plans to skip an April 5-6 meeting of NATO foreign ministers for a US visit by the Chinese president and will travel to Russia later in the month

Energy:

OPEC support for continuing supply cut agreement into second half of year said to be growing; to require non-OPEC participation to extend agreement

Economic Data

(CH) Swiss Feb Trade Balance (CHF): 3.1B v 4.8B prior; Real Exports M/M: -2.2% v -3.6%prior; Real Imports M/M: +2.9% v -3.9% prior

(HK) Hong Kong Feb CPI Composite Y/Y: -0.1% v +0.7%e

(UK) Feb CPI (beat) M/M: 0.7% v 0.5%e; Y/Y: 2.3% v 2.1%e; CPI Core Y/Y: 2.0% v 1.7%e

(UK) Feb RPI M/M: 1.1% v 0.8%e; Y/Y: 3.2% v 2.9%e; RPI Ex Mort Interest Payments (RPIX) Y/Y: 3.5% v 3.1%e

(UK) Feb PPI Input M/M: -0.4% v +0.1%e; Y/Y: 19.1% v 20.1%e

(UK) Feb PPI Output M/M: 0.2% v 0.3%e; Y/Y: 3.7% v 3.7%e

(UK) Feb PPI Output Core M/M: 0.0% v 0.2%e ; Y/Y: 2.4% v 2.5%e

(UK) Feb Public Finances (PSNCR): +£12.9B v -£26.5B prior; Public Sector Net Borrowing: £1.1B v £2.2Be

Fixed Income Issuance:

(ID) Indonesia sold total IDR7.87T in 2-year,4-year, 7-year and 15-Year Project based Sukuk (PBS)

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 09:40 GMT)

Indices [Stoxx50 +0.2% at 3,447, FTSE -0.2% at 7,413, DAX flat at 12,050, CAC-40 +0.3% at 5,025, IBEX-35 +0.7% at 10,283, FTSE MIB +0.9% at 20,143, SMI -0.1% at 8,684, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European equity indices are trading mixed but generally higher across the board; Gains led by banking stocks despite shares of Deutsche Bank trading notably lower in the Eurostoxx; Italian FTSE MIB the outperformer as a result as the heavily weighted peripheral lenders trade higher; Commodity and mining stocks lower in the FTSE 100 as copper prices trade lower; China markets ending higher overnight despite Japan’s Nikkei lower.

Upcoming scheduled US earnings (pre-market) include Coca-Cola European Partners, Cheetah Mobile, Canadian Solar, Francenca’s Holdings, General Mills, Lands’ End, and Lennar Corp.

Equities (as of 09:30 GMT)

Consumer Discretionary: [888 Holdings 888.UK +7.7% (FY16 results), Deutsche Wohnen DWN.DE -1.5% (FY16 results, analyst downgrade), ScS Group SCS.UK +1.2% (H1 results)]

Financials: [Bellway BWY.UK +2.2% (H1 results), Grand City Properties GYR.DE +1.6% (FY16 results), Partners Group PGHN.CH +3.9% (FY16 results)]

Industrials: [BMW BMW.DE +1.9% (outlook, CFO comments), Komax KOMN.CH -4.1% (final FY16 results)]

Materials: [Akzo Nobel AKZA.NL +3.3% (PPG said to prepare renewed takeover bid)]

Technology: [Fingerprint Cards FINGB.SE -29.3% (negative outlook, withdraws dividend)]

Telecom: [Altice ATC.NL +1.9% (acquisition of Teads for €285M cash)]

Speakers

(EU) Various Euro-Area Finance Ministers (EcoFin) comment ahead of meeting in Brussels EU’s Dombrovskis: EU to stay committed to international trade Luxembourg Fin Min Gramegna: Pleased about progress on Greece; an agreement on 2nd bailout review was very close. Europe worried about globalization being questioned; need to evaluate steps of Trump administration

Swiss SECO March 2017 Economic Forecasts cut its 2017 GDP growth forecast from 1.8% to 1.6% while maintaining 2018 GDP at 1.9%. Raised 2017 inflation from 0.0% to 0.5% and 2018 CPI from +0.2% to 0.3%

BOJ Dep Gov Iwata reiterated that central bank was far from achieving its 2% inflation target and not using FX to achieve price target

China Premier Li Keqiang reiterated view that China must ensure State assets held overseas retain value and were operated safely

China PBoC said to inject hundred billions of yuan in liquidity after interbank payments on borrowings missed

Currencies

USD remained under pressure as the pace of pushing President Trump’s domestic agenda seemed impacted due to FBI ‘s investigation into possible administration links with Russia

EUR/USD was approaching the 1.08 level aided by the French Presidential debate after candidate Macron put in a strong performance. The Euro was little impacted by the current phase of the Greece bailout review as the country and lenders remained divided, bailout talks to intensify with the real deadline looming a few months down the road.

GBP/USD moved above the 1.24 level ahead of the Feb CPI data. The data later confirmed thatUK inflation moved above BOE target for 1st time in over three years (as noted by the recent BOE Mar minutes). The GBP/USD higher by over 0.7% just ahead of the NY morning at 1.2450

Fixed Income:

Bund futures trade at 159.37 down 41 ticks aided by favourable reaction from last night French Election debate. Support remains at 159.06 initially before testing contract low at 158.73 followed by 158.40. Resistance moves to 159.96 then 160.16 followed by 160.45.

Gilt futures trade at 125.53 down 74 ticks gaining momentum downwards after stronger UK inflation readings, with headline CPI above 2% for the first time since Dec 2013. Support moves to 125.24 with resistance remaining at 126.44 then 126.75, 126.87 followed by 127.35. Short Sterling futures has seen a further bout of steepening with Futures down 1 to 5bp across the strip with Jun17Jun18 spread steepening to 23bp.

Tuesday’s liquidity report showed Monday’s excess liquidity fell to €1.337B a fall of €18B from €1.355T prior. Use of the marginal lending facility fell slightly to €176M from €178M prior.

Corporate issuance saw $4.63B come to market via 4 deals headlined by Heineken $1.75B 2 part offering and Caterpillar 2 part $900M offering. This pushes monthly issuance above the $90B mark.

Looking Ahead

(UR) Ukraine Q4 Final GDP Q/Q: No est v 1.7% prelim; Y/Y: 4.7%e v 4.7% prior

(NG) Nigeria Central Bank Interest Rate Decision: Expected to leave Interest Rates unchanged at 14.00%

(PT) Portugal Jan Current Account: No est v -€0.2B prior

06:00 (HU) Hungary Parliament elects new MPC members for central bank

06:00 (EU) Daily Euribor Fixing

06:00 (ZA) South Africa to sell combined ZAR2.35B in 2037, 2041 and 2044 bonds

06:15 (CH) Switzerland to sell 3-month Bills

06.30 (UK) Weekly John Lewis LFL sales data

06:35 (US) Fed’s Dudley with BOE Gov Carney in London

06:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

06:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

07:00 (UK) Mar CBI Industrial Trends Total Orders: 5e v 8 prior, Selling Prices: 32e v 32 prior

07:00 (IL) Israel Jan Manufacturing Production: No est v -0.5% prior

07:00 (TR) Turkey to sell Zero 2018 Bonds

07:30 (EU) ESM to sell €1.5B in 6-month Bills

07:45 (US) Daily Libor Fixing

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:30 (US) Q4 Current Account: -$129.0Be v -$113.0B prior

08:30 (CA) Canada Jan Retail Sales M/M: +1.5%e v -0.5% prior; Retail Sales Ex Auto M/M: +1.3%e v -0.3% prior

08:55 (US) Weekly Redbook Sales

09:00 (CN) China Feb Conference Board Leading Economic Index: No est v 1.1% prior

09:00 (RU) Russia announces weekly OFZ bond auction

09:15 (UK) Baltic Dry Bulk Index – 09:30 (NZ) Fonterra Global Dairy Trade Auction

10:00 (MX) Mexico Q4 Aggregate Supply and Demand Y/Y: 2.2%e v 1.6% prior

10:00 (EU) Weekly ECB Forex Reserves: No est v €281.9B prior

11:00 (BR) Brazil to sell I/L 2022, 2026, 2035 and 2055 Bonds

11:30 (US) Treasury to sell 4-Week Bills

12:00 (UR) Ukraine to sell Bonds

15:00 (AR) Argentina Q4 GDP Q/Q: No est v -0.2% prior; Y/Y: -1.9%e v -3.8% prior

15:00 (MX) Mexico CitiBanamex Survey of Economists

16:30 (US) Weekly API Oil Inventories

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