FTSE 100: Continues to hold above support at 4675. A weekly close above this level would provide further evidence of the strength that this third wave rally holds.
A day of consolidation in the US, but a surprising result from the BOE left traders focused on the UK market. The announcement that the BOE will extend its asset purchasing by a further £50bn was unexpected given the improvement seen in the underlying data over the past few months. Indeed, in their statement the BOE acknowledged that there was “considerable stimulus” (monetary, fiscal, sterling) working through the economy, but viewed the risk to inflation from this stimulus to be balanced with more potential downside risk seen from the still large negative output. This outlook from the BOE would have been, in part, based around the new GDP and CPI forecasts due for release in next Wednesday inflation report. We can only conclude from the actions taken by the BOE that these are likely to be less then robust. The price action of the short sterling strip also indicates that although the BOE may feel that inflation risks are balanced, futures traders do not; with the curve steepening sharply. The debate now increases amongst economist on what yesterday’s actions means for a potential exit strategy. With sterling weakening and the shortsterling strip steepening these asset classes are indicating that the risk is now skewed towards a potential earlier then expected tightening.
Today, the focus is on US employment data with non-farm payrolls expected at -320K and the unemployment rate rising to 8.8% from 8.6%. In Europe, we have Germany’s June industrial production data which is expected to report a further rise in month on month data.
Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:
Please note this report provides a guide to some of the relevant areas that individual investors should consider discussing with an authorised adviser in relation to their specific circumstances, it does not constitute individual advice. As a result no action should be taken or refrained from being taken as a result of its content.
