UK inflation is back

The big news today was the rise in UK inflation, which has hit a six month high for August at 2.7%. Inflation is being driven by several factors, including wage growth and higher prices for key items like clothing, transport and recreational goods.

The big news today was the rise in UK inflation, which has hit a six month high for August at 2.7%. Inflation is being driven by several factors, including wage growth and higher prices for key items like clothing, transport and recreational goods. While the pound responded positively initially to the news, the data will also mean that the Bank of England will have to raise rates again. The Bank has been inclined to keep them static in the run up to Brexit, in anticipation of economic turbulence, but if this trend continues, may have to reconsider.

The FTSE 100 still managed to close the day in positive territory at 7331 at +0.42%, after a sharp drop on the inflation news in the morning.

Positive data sees US markets off to good start

The US market opened up as investors shrugged off the ongoing saga of US-China tariff discussions and focused instead on improved housing data and rising US Treasury yields. The S&P 500 was up 0.16% while Nasdaq struggled, down 0.33% in early trading on poor data from Microsoft.

The US benchmark 10 year Treasury yield moved back above the 3% mark, which is widely seen as an important benchmark by the market. This is regarded by some Wall Street analysts as indicative of growing confidence in the overall state of the US economy and represents a migration from investors out of defensive stocks (e.g. utilities) and back into government paper.

The other big US figure was the uptick in new home building in August which represents a shot in the arm for the housing market. US housing has been the black sheep of the family for US investors this year, having underperformed the rest of the economy due to higher borrowing costs. It has not been a focus point for the Trump administration and has not benefited from rising US interest rates.

Irish border squabble drags pound down

Brexit is never far away as far as the pound is concerned – this time it was retracing previous gains as it emerged that Theresa May was planning to reject an EU offer to solve the Irish border issue. The GBP had previously reacted positively on news that EU chief negotiator Michel Barnier had made an improved offer on the contentious issue. Sterling was down against the USD for the day, and holding its own against the EUR.

The situation was not helped by the latest house price data which has shown that London housing continues to fall in the wake of the Brexit vote. It could be argued that London was unrealistically priced to begin with, but it is also seen as the area of the UK most likely to be hit by net migration out of the UK by EU nationals. Currently the Bank of England is taking the view that this is not the start of a national trend, and that stamp duty, which has damaged appetite for buy to let investments is more to blame. 


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.