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  • richard evans

UK inflation fails to decline, possible 50bps raise from BOE tomorrow?

Good morning

UK inflation numbers this morning showed none of the declines we had been hoping for, coming in at 8.7%, the same as the previous reading. Core inflation, excluding food and energy, was higher than previously, coming in at 7.1% compared to 6.8% previously. Not great. GBP has found support as you’d except although with a rate rise tomorrow pretty much a certainty, those gains have been somewhat limited, but enough to get GBPEUR back above 1.1700 after testing down to the mid-1.16s yesterday afternoon, while GBPUSD is now 1.2770.

Further rate rises ahead likely to keep GBP at elevated levels and there must be greater risk of a 50bps tomorrow which I don’t think is yet being reflected in GBP pricing. Retail sales from the UK will be seen early tomorrow morning, not expected to be a terrific set of numbers, hardly a surprise really. An overnight 1.2800 GBPUSD call costs about 30 usd pips, or around £2,500 per £1m notional, seems reasonable value just in case we do get a hawkish surprise tomorrow.

After Blinken’s meeting with Xi yesterday, it had sounded as though the US/China relations were at least back on talking terms. Not sure Biden helped this mind you when he referred to China’s President Xi as a dictator at a speech late yesterday. Biden has also said that the threat of Putin using nuclear weapons in Ukraine is very real, as Russia says it is deploying nuclear weapons in Belarus.

Feds Powell will offer his semi-annual testimony to the House this afternoon, on rates he is unlikely to say anything more than Fed remains ready to act and will look at incoming data. Several other Fed officials speaking today but I’d imagine they will try not to say anything to contradict Powell.

Another high fix in USDCNY, this time coming in at 7.1795 after a series of small rate cuts in recent days and ahead of a holiday that sees China markets closed for the rest of the week. Meanwhile BoJ minutes showed there to be little desire to change the loose monetary policy that has been in place for so long. USDJPY now 142.00, EURJPY 155.00 and GBPJPY 181.25. It remains very difficult to buy yen, particularly given the large cost of carry, although I have seen some thinking USDJPY could hit 150 in the coming weeks, perhaps now is not the time to think of buying yen anyway.

Worth keeping an eye on gold. It has traded a relatively narrow $1935-1980 range since mid-May but as we know gold rarely sits still for too long and we are just starting to see breaks outside that range to the downside. Tempted to look at downside option, such as a one month 1920 put, costs about $15/oz, or add in an 1860 knock out to bring the price down to $5.00/

For those enjoying the long summer evenings, make the most of it. Those evenings only get shorter from now, today being the longest day. I’m actually out of the office this afternoon and tomorrow, so there will be no report tomorrow morning. I’ve added in a rather busy looking calendar for Thursday as well just so you can see what I’ll be missing. Not great timing I admit!

Finally, commiserations to England for losing what turned out to be an exciting first Test against Australia in the ashes. Both teams had their chances and some say neither team deserved to lose. In the end the Aussie Cummins put on a display worthy of his captaincy and led his side to victory. Can England get revenge in a weeks time at Lords?

Congratulations though to Scotland who beat Georgia in the Euro qualifying, giving them a great chance of reaching next years tournament finals. The match was halted soon after the start due to terrible conditions, the pitch was so wet I’m surprised they even started. Scotland won’t be complaining!

- 10.15 ECBs Panetta speaks

- 13.30 CAD retail sales

- 14.45 ECBs Nagel, Schnabel speak

- 15.00 Feds Powell speaks

- 16.40 Feds Goolsbee speaks

- 21.00 Feds Mester speaks

- 23.45 NZ trade balance


- 08.30 SNB rate announcement

- 12.00 BoE rate announcement

- 13.05 ECBs Nagel speaks

- 13.30 US initial jobless claims, Chicago Fed national activity index

- 14.55 Feds Bowman speaks

- 15.00 Feds Powell speaks

- 15.00 EU consumer confidence

- 21.30 Feds Barkin speaks

- 00.00 AUS S&P manufacturing, services PMI

- 00.01 UK GfK consumer confidence

- 00.30 Japan CPI

- 07.00 UK retail sales

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