UK inflation tumbled in August, thanks to Rishi Sunak's ‘eat out to help out' scheme. That inflation theme will continue as the FOMC look to set out their new average inflation targeting policy.

  • FTSE lacks direction as the pound begins to rise

  • Eat out to help out sparks sharp CPI decline

  • FOMC meeting to focus on average inflation targeting

European markets are distinctly lacking direction in early trade today, with FTSE gains faltering to bring the index back down into negative territory. Last week's sharp losses for the pound came to the benefit of the FTSE 100, yet we are now seeing a gradual GBPUSD strengthening to the detriment of market sentiment. With sentiment around Brexit talks soured after the emergence of the internal market bill, the ongoing debate in parliament will be crucial in determining whether Johnson gets his way. While the government remains adamant that they want a deal with the EU, the current manoeuvring does raise fears of a further breakdown in negotiations with less than four-months left.

UK inflation hit the lowest level in almost five years last month, with the government's ‘eat out to help out' pushing down the cost of living for the short-term. While the scheme provided a sharp contraction in prices, we are seeing wider prices decline around the globe, with disinflation a worry for the US and eurozone. While the Fed may have shifted the goalposts with their latest average inflation targeting method, it looks unlikely we will see that traditional 2% level breached anytime soon. Today's FOMC meeting looks set to provide the main event of the day, with Powell expected to flesh out the new inflation targeting proposed in his Jackson Hole speech. With few expecting any shift in monetary policy, today will be as much about any shift in economic forecasts and the new inflation policy than rates or QE.

Ahead of the open we expect the Dow Jones to open 117 points higher, at 28,113.

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