UK inflation down but investors look to Bernanke s testimony this afternoon

European markets have inched very cautiously higher this morning with oil stocks and banks offering support to the major indices. The FTSE index however bucked the trend within Europe losing ground as the morning progressed. By mid morning FTSE had shed 0.3%, whilst the DAX and the CAC had gained 0.39% and 0.45% respectively.

Today’s trading session offers much in the way of economic data -domestic, European and from the US, however, investors will wait for US Federal Reserve chairman Ben Bernanke’s policy testimony which starts later today for a lead as to market direction.

As with previous months, investors will be waiting cautiously for any hints or signs of a loosening of monetary policy and therefore further quantative easing to boost the US Economy. Since the last meeting we have seen weaker payroll figures released for June and also yesterday weaker than expected retail figures so a more dovish approach could be coming. Even if nothing particular is mentioned in this session it is likely to occur between now and the end of the year and with this in mind the markets are waiting for the green light.

Here in the UK annual inflation figures slowed unexpectedly to 2.4% down from 2.8% in May, proving to be the slowest annual rate since November 2009. This is still higher than the benchmark 2% figure that the Bank of England aims for, however it is certainly on the right track. Thanks to the recent drop in the price of oil, the price of petrol has consequently reduced easing pressure on inflation. The same can be said for food prices which have fallen recently, however with the extreme weather systems across the globe in recent months the price of food could increase quite strongly again going forward.

On the negative side in the UK investors continue to punish G4S over the problems with its Olympic contract as it shed another 3.5% by mid morning, adding to the 9% it lost during trading yesterday. The fact that the failure has been so well publicised in the media makes it difficult for the company to escape from the continued selling.

In Europe the Centre of European Economic Research ZEW released data concerning German Investor Expectations. This figure came in on expectation at -19.6 a slight drop from June’s figure of 16.9 “The decline of the economic expectations concerning the end of 2012 is flattening out gently. This could possibly be an early sign of an encouraging development in 2013. However, risks should not be underestimated,” said ZEW President Wolfgang Franz.

Elsewhere in Europe Spain’s borrowing costs dropped significantly following a bond auction where the Government successfully sold 3.56 billion Euros, with yields on the 12-month bill averaging 3.918% down from 5.074% from the previous auction in June. A noteworthy drop but one that would need to be seen on the benchmark 10-year bond before investors pay real attention.