UK CPI breaches BoE target

The Day So Far

Highlight of this morning has been the latest UK CPI reading for February which came in at 2.3% Y/Y above expectations of 2.1%, with the core reading also moving up to 2.0% from 1.6% previously. As a result of the forecast beating numbers Cable vaulted higher and provided a good classic opportunity to join the move from yesterday’s top at 1.2465 in the Jun’17 future. Rising transport costs, particularly for fuel, were the main contributors to the increase in the rate according to the ONS and food prices rose for the first time in 31 months. Although the price action has been higher in the immediate aftermath we quickly turn back to the reality of what rising inflation means for the consumer who relative to other measures has already begun tightening their belt ahead of tougher times ahead with wages lagging the movement in prices. Just last week Kristin Forbes voted for immediate action from the Bank to counter this rising trend and the question moving forward will be whether any of her MPC colleagues will start to move in a more hawkish direction. As such, after a relatively quiet spell for the Bank the economic situation in combination with the political uncertainty ahead means that life is about to get a lot more complicated for Carney and impending volatility in GBP will likely be not far behind.

The other big story of the morning has been the relief rally in the EUR following the first televised debate between the five main candidates in the French Presidential election. According to an Elabe poll conducted immediately after the session, 29% of the respondents thought Macron came out on top while Fillon and Le Pen (both 19%) were a distant third behind socialist candidate Melenchon. From here I would be monitoring opinion polls for the rest of the week to see whether the event has had any feed through into public sentiment or prompted any of those sitting on the fence to now commit to a candidate, the one certainty here is that as we approach April the media interest in this event will only intensify in the weeks ahead.

The Day Ahead

Looking at Vas’ technical set-up for today I was shocked to see he is positioned for being long all four the major assets that we track, the first time I can remember seeing this in some time. One thing I like about his view is his flexibility to adapt to what the intraday is offering and to be reactive to changes in both price movement and the fundamentals. The EUR looks well supported for now in the context of the French debate, while OPEC sources from yesterday have proven to be a clear nod of the cartel’s intention to counter any persistent move lower in prices.