A marginal increase in UK inflation

UK inflation rose to 1.3% for the month of October according to CPI, and the minimal adjustment from September’s 1.2% reading was because there was a marginal drop in transport costs benchmarking from this time last year. However, the price of food and non-alcoholic beverages fell by 1.4% in October, when compared with last year, marking the sixth consecutive month without a rise - the longest such period since 2000. Furthermore, yesterday witnessed the release of Producer Price Index for year-on-year (YoY) which missed expectations of -0.2% to come out -0.5% which was deemed negative for the UK economy as this reading is the monthly measurement of the price changes of goods produced by British manufacturers. There was an 18.8% annual rise in house prices in London this year which reflected in 12.1% uplift for the whole of the UK economy, the Office for National Statistics said yesterday. Later this morning we have BoE Minutes, and the MPC vote for a rate hike which is considered as very high impact but due to the recent UK results in inflation and unemployment all signs are pointing towards this decision being procrastinated until Q3 2015.

Euro power house economy, Germany, was back driving surprise results on the economic calendar yesterday as the ZEW survey (which measures the institutional investor sentiment) released a reading of 11.5, benchmarking from a forecast 0.5 which was compelling to say the least. In addition, the European economy as a whole mirrored a similar figure of 11 to put some clarity and confidence in investor sentiment in the struggling economy. The euro gained 0.2% against the pound at the time this was released and the pairing broke through the 1.25 level dropping to a low of 1.2479 IB to close the London session, opening this morning at 1.2448 IB.

Across the Atlantic, there was more positive news for the US housing market as home buildings and sales are expected to increase which will add some volatility to the housing market. NAHB were forecasting a figure of 55 when the actual figure released was 58.
Producer Price Index in the States had yet another very positive release for the YoY figure coming out at 1.5% which changes of price in this sector are widely followed as an indicator of commodity inflation. Sterling is trying to hold its value and is really starting to feel the pressure of the Greenback as the pairing is now trading at 1.5650 IB. Tomorrow we have the FOMC minutes which could leverage more dollar strength off the back of this meeting.

Glenn Stevens, central bank Governor of The Royal Bank of Australia, made an announcement yesterday that the economy warrants low interest rates for much longer than originally anticipated as he believes the currency is overvalued and is having a negative impact on the country’s imports. “An exchange rate more in line with fundamentals would be a helpful contributor to a balanced growth outcome”, he said. GBP/AUD opened up yesterday morning at 1.7970.