UK inflation rate goes positive

The UK inflation rate- as measured by Consumer Prices Index (CPI) rose to 0.1% in May, up from -0.1% in April.

UK inflation rate goes positiveThe biggest contribution to the rise came from transport, notably air fares, the Office for National Statistics said.

In April, CPI inflation turned negative for the first time since 1960, mainly due to a drop in air and sea fares.

ONS statistician Philip Gooding said: “Last month CPI turned negative, mainly because of falling transport fares due to the timing of Easter. This month, that fall has been reversed.”

He added that the falls in food and fuel costs over the past year “have eased this month, helping to push inflation up”.

While the prices of food and fuel rose in May from the previous month, the prices were still lower than a year earlier.

However, while the overall effect of food and fuel on CPI inflation pulled the rate down by about 0.5 percentage points in May, this was less pronounced than the month before when the prices had a negative effect of 0.7 percentage points.

In May Retail Prices Index (RPI) inflation, a separate measure which includes housing costs, was 1%, up from 0.9% in April.

Bank of England governor Mark Carney has said he expects inflation to remain low in the short term.

The Bank expects near-zero inflation to help the UK economy by boosting the spending power of households.

Chancellor George Osborne said “a powerful mix of low prices and rising wages” was “good news for working people and family budgets”.

Nevertheless, he said: “Of course the job is not done and we will continue to remain vigilant to all risks, particularly when the global economic situation is so uncertain.”

UK inflation rate remains zero in March

The UK’s inflation rate remained at it’s record low of 0pc in March- according to the Office for National Statistics.

UK inflation rate remains zero in MarchCheaper clothing and footwear, offset by a rise in petrol prices, helped to maintain the rate at 0% for a second month according to the official figures by the ONS.

The figure was the lowest rate of Consumer Prices Index (CPI) inflation since estimates of the measure began in the late 1980s.

It means the cost of living is broadly the same as it was a year earlier.

However, the ONS said that if the rate of inflation was calculated to two decimal places, prices were 0.01% lower than a year before – the first fall on record for the CPI measure.

One of the main reasons the CPI rate remained broadly unchanged was rising petrol and diesel prices between February and March, the ONS said.

But an overall fall in fuel prices over the past year has been a major contributor to low inflation, it added.

The CPI figure leaves inflation well below the Bank of England’s 2% target.

There had been speculation that the CPI rate – as measured to one decimal place – would fall below zero in March, and there remains a possibility that the rate could fall in the coming months.

However, few economists think the UK is at risk of the type of entrenched deflation that Japan has suffered from.

In March, inflation as measured by the Retail Prices Index (RPI) fell to 0.9% from 1.0% the previous month, the Office for National Statistics said.

Like CPI, RPI inflation is calculated from a sample of retail goods and services. However, RPI is calculated differently and includes data such as mortgage repayments.

The wise money focuses on Mark Carney Speech

Today is decision day for the Bank Of England and the European Central bank.The wise money focuses on Mark Carney SpeechIt is not expected that the Bank Of England will move on interest rates or QE and it is widely expected that the BoE will sit on their hands until Mark Carney assumes the governor post in July.

Today Mark Carney has an important testimony and it will be viewed very closely for any clues to future policy direction or changes to be introduced by the BoE post July.

Carney has previously suggested a focus on nominal GDP (NGDP) would be a better indicator to help steer monetary policy, this would lend to a more aggressively dovish approach which would continue to weigh on the pound if mentioned.

Yesterday, chancellor George Osborne voiced his frustration over the Bank Of England’s apparent reluctance to pursue further monetary easing at the present stage.

This is interesting as it shows the government is backing a more aggressively dovish BoE which is the expected direction that Mark Carney will take.

We also have the European Central Bank meeting and again no changes are expected.

It will be the post meeting press conference that will grab the attention and in particular whether Mario Draghi will voice concern over recent euro appreciation.

The gains in the euro have drawn a lot of attention recently and it will be interesting to gauge the ECB’s tolerance of this after the Greek finance minister raised concern over the strength of the euro.

We have just had UK industrial production and manufacturing data come in stronger than expected which is a welcome boost for the UK and the Pound.

This is also likely to further support the current mantra from the Bank Of England to keep calm and carry on in the short term.

Waiting for Mark Carney’s evidence

The Pound weakened further yesterday after a slight upswing in the morning.Waiting for Mark Carney's evidenceSentiment still remains very negative however market volatility provides opportunities to lock in a beneficial exchange rate, limit orders would be key to achieving this.

The Bank of England Monetary Policy Meeting is tomorrow where any policy changes would be contrary to market forecasts, rates should stay unchanged and the Asset Purchase Facility should be kept on hold at £375 billion.

Recent statements show that the MPC members have less confidence in quantitative easing, therefore analysts are predicting that there will not be any policy changes while Sir Mervyn King remains the Governor of the Bank of England.

The MPC will also allow the Governor in waiting Mark Carney to give a statement.

Whilst it is not expected that he will discuss his views on the UK economy directly, it will be interesting to see if he discusses Nominal GDP or other policy ideas.

Mr Carney has recently promoted NGDP as a way to communicate and manage monetary policy expectations, there is no certainty that this will be implemented in Carney’s governorship as there is still opposition in the government and the BoE.

A policy shift of this type would cause Sterling to weaken further.

The euro has continued to strengthen after a slight period of weakening earlier this week when news emerged that there was political unrest in Spain and Italy.

The Bank of Japan Governor will step down early which has caused the Yen to weaken further as the markets see this as a sign that he will be replaced with a more dovish governor who will actively pursue a more aggressive monetary policy.

The Pound continues to be weak

After a brief fight back against the euro and the US Dollar earlier in the week, the Pound has once again succumbed to pressure in the wise money markets dipping below the psychological 1.20 level in early trade.The Pound continues to be weakThe general sentiment for the Pound looks weak with 2012 fourth quarter GDP expected to disappoint and economic data looking continually fragile.

The prized AAA rating for the UK will certainly be at threat if we see a continuation of stagnant economic growth.

All eyes will be on next week’s GDP number along with retail sales data on Friday.

The markets today will be keeping a close on the auctions in Spain and France to see the uptake.

The euro has rallied significantly in 2013 due to an overall tightening of peripheral sovereign spreads and a good uptake will be hoped for to continue the momentum.

The euro has also benefitted from the ECB not cutting interest rates at last week’s meeting and also due to an overall risk on environment so far in 2013 which is euro positive and USD negative.

Yesterday we saw the Fed beige Book released which noted that the US economy had expanded modestly in December, driven mainly by housing and auto sales.

Later today we see US housing starts and building starts and the Philly fed survey along with more earnings report.

The data and earnings should help to give an overall flavour for the US recovery

Bearish sentiment continues to dominate the wise money markets

Wise Money will start with the positive news- because there is not much of it.Bearish sentiment continues to dominate the wise money marketsAlthough taken as a whole the eurozone officially entered a double dip recession, German GDP remained positive and even beat consensus expectations slightly.

The euro really would be in trouble if the German economy started to seriously falter, but the powerhouse of Europe continues to defy the many predictions of the inevitable slow down.

Now to the negatives this week- and there are many.

The data flow has been almost uniformly below estimates and along with a disappointing earnings season in America, market sentiment is growing increasingly bearish.

The Bank of England and Federal Reserve both gave rather downbeat assessments of the UK and US economy’s respectively and warned the outlook will remain difficult for the foreseeable future with low growth and higher inflation squeezing incomes.

US advance retail sales were particularly disappointing.

Hurricane Sandy was blamed for the number but it will be next month that the super storm’s impact on the data will be felt hardest and the market is already beginning to discount this.

In the currency markets that has translated into Sterling weakness and US Dollar strength as risk assets suffered another poor week.

The normal safe haven Japanese Yen has moved in the opposite direction, which has probably accentuated the move in the Dollar, as a December election was called.

The opposition party in Japan have called on the Bank of Japan to use its power in unlimited quantities to significantly weaken the Yen, and with the possibility of large scale change to the BoJ board after the election, huge intervention by the Japanese authorities is becoming very likely in early 2013.

Rollercoaster growth for UK economy

Yesterday the Bank of England further downgraded the UK’s growth forecast and warned that the economy will continue a rollercoaster pattern of recovery. Rollercoaster growth for UK economyThe key takeout from the Bank of England report is that the UK economy is still under pressure both from rising inflation and forecasts of low growth- both of which are Sterling negative.

In addition Mervyn King maintained the central banks confidence in asset purchases and did not rule out further QE moving forward.

The Pound fell against the US Dollar and the euro yesterday and continues to look weak this morning.

Elsewhere we have seen GDP data for Germany France and Spain this morning.

The German and French economies managed slight growth in Q3 but not surprisingly Spain’s economy shrank by 0.3% in the third quarter and this follows a 0.4% contraction in the second quarter.

Italian GDP has also come in negative at -0.2% which is weak but not as weak as expected.

The flurry of GDP data is not encouraging for European growth and should weigh further on the euro.

The Japanese Yen has started to show some signs of weakness after prime minister Yoshihiko Noda said he was set to dissolve parliament and hold a snap election.

The opposition are calling for aggressive monetary easing by the BOJ to assist the economy and devalue the Yen.

This is leading to some selling pressure on the Yen as the election is likely to be a close call.

Elsewhere Xi Jinping has been officially appointed as the new general secretary of the ruling communist party in China succeeding Hu Jintao.

We expect the weak and uncertain sentiment to continue as the markets continue to slowly to price in the fiscal cliff risks, as we sit this is largely USD positive in line with risk aversion.

Wise money markets wobbly on eurozone concerns

In Europe the wise money markets took another hit on concerns over debt ridden Greece and the bailout providers to come to a conclusion over their bailout package.Wise money markets wobbly on eurozone concernsThe fact that Greece has been granted an additional 2 years until 2022, to trim its budget lower to 120 percent of GDP growth, was the only news that provided some relief, albeit temporarily.

The decision to dispense the € 31.3 billion tranche will be made at a meeting on November 20, when the EU leaders reconvene.

The euro initially weakened against the Greenback to lows of 1.2660 but has managed to claw its way back up to 1.2730 levels.

A steep rise looks unlikely for the euro as there was further news that investor confidence in Germany and broader Europe fell further by 4.2 points into negative territory in October.

The only silver lining at the moment for the region is that hopes are rising that Spain might finally request for their share of a sovereign bailout.

This led bond yields in the region to ease slightly.

However, there is a general strike in Spain today to protest against the austerity plans that they are faced with.

UK Inflation figures out yesterday morning unexpectedly rose by 2.7 percent from a year earlier in the month.

This was much higher than the forecast for CPI growth which may move away from the BOE’s target which currently sits at 2%.

Most of this inflation hike, as per analysts, is owing to the rise in University tuition fees.

Today, we expect unemployment figures for the UK which is expected to come in at 7.9%.

As we move into the evening, Mervyn King will present the BOE inflation report, so any clear direction is expected following the speech.

UK retail sales impress the wise money markets

As the UK outlook continues to fluctuate there was another spot of light at the end of the tunnel yesterday with UK retail sales impressing- coming in above expectations at .03% growth against the expected -0.1% drop in sales in July from June and compared to last July 2011 retail figure came in at 2.8%, double the consensus of 1.4%. UK retail sales impress the wise money marketsThis was positive for Sterling- building on the better then expected unemployment data out earlier in the week and is not yet expected to have shown any impact from the Olympics or the arrival of the good weather.

Also out yesterday we had the Philadelphia Fed Manufacturing Index, in the USA, which came in worse then expected at -7.1 versus consensus figure of -5 as sign that soft global conditions are affecting the US recovery.

This did however rally the markets into risk on mode with many believing this will signal a stronger call for financial stimulus in the form of QE3 to help fix the broken wings of the bald eagles recovery.

This call was not heard in China with many investors believing that the nation would start further stimulus as soon as this week although those plans have gone up in smoke as the politicians jostle on their premiership plans.

In other news German Chancellor Angela Merkel did her part to help buoy the euro and markets by supporting closer fiscal integration under the terms of ECB President Mario Draghi stated in his speech two weeks ago.

This was her first speech back from her summer holiday and was a sign that Germany is still backing the Euro and committed to doing what they can to provide a long term solution to the raging crisis.

The news yesterday sent the markets into a flurry of activity with retail figures sending GBP/EUR up over half a cent to sit just below 1.28 although later the biggest moves started to come when Philadelphia Fed Manufacturing Index emerged worse then expected sending EUR/USD above 1.23 and reversing GBP/EUR back to the pre-retail figures level but giving GBP/USD a much needed boost and moving the pair over a cent on the day.

The GBP/USD rally has transferred over into the stock markets with European stocks finishing in the Green.

Money markets becalmed- for a change

The money markets are experiencing a lull across the seas after the whipsaw markets over the past few weeks.Money markets becalmed- for a changeAlthough the situation in Greece is still very worrying, it seems the markets are paying heed to the ‘no news is good news’ saying, with most of the major currency pairs trading in tight ranges.

Lower volatility should persist this week in the absence of any major developments on the macro front (Euro-zone!) with little of the big ticket data due over the coming days.

We had the UK Cost of Purchasing Inflation data this morning; the figure was marginally lower than the consensus estimates at 3%, still at an uncomfortable level for the Bank of England.

The Bank of England minutes are also due tomorrow morning. Completing UK data releases this week is the preliminary GDP number on Thursday.

It is worth noting that the arch dove on the MPC, Adam Posen, has confirmed he will not be serving another term.