Ipek Ozkardeskaya
Swissquote Bank Ltd
Monetary loosening in the UK following the country’s decision to leave the European Union is not bearing fruits at the anticipated speed.
Inflation in the UK accelerated at the stable pace of 0.6% year-on-year in August versus the 0.7% expected. Core inflation also remained unchanged at 1.3% year-on-year, versus 1.4% expected. Although the latest figures did not meet market expectations, the rising import price pressure, due to a weaker pound, should gradually feed into the domestic price dynamics. Today’s inflation read is benign and should not revive any speculations regarding any additional monetary stimulus from the Bank of England (BoE).
FTSE 100 stocks wrote-off 4% of their value on the week to September 12th. The firm appreciation in the pound and the persistent selling pressure on energy markets could encourage a certain capital flow from UK stocks to the corporate bonds, as the BoE will start purchasing corporate bonds on September 27th as part of its post-Brexit energy boost programme.
There will be three purchase operations per week- on Tuesdays, Wednesdays and Fridays.
The BoE aims to buy £10 billion worth of corporate bonds over the next 18 months.
According to the list of eligible bonds as of September 12th, the electricity (25%), consumer and non-cyclical (15%) and industrial and transport (14%) sectors make up the majority of the eligible list, while gas (+7%), energy (4%), property and finance (2%) sectors are at the bottom of the list.
The size of the eligible market and the sector shares will be updated on a monthly basis as well as the BoE’s holdings.
Little appetite in the US dollar
The appetite in the US dollar eased after the Federal Reserve (Fed)’s Brainard gave dovish signals regarding the Fed’s future policy outlook. Brainard pointed at the need of a stronger spending and inflation data before further monetary tightening. She also warned against prematurely removing the monetary support.
Lockhart sounded more optimistic highlighting that a "serious discussion" over a rate rise is warranted, yet there is no urgency for the Fed to raise rates at a particular time, although wage pressures appear to be broadening despite weak inflation.
US yields remain high despite a decline in September rate hike expectations to only 22%.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
Editors’ Picks
EUR/USD climbs to two-week highs beyond 1.1900
EUR/USD is keeping its foot on the gas at the start of the week, reclaiming the 1.1900 barrier and above on Monday. The US Dollar remains on the back foot, with traders reluctant to step in ahead of Wednesday’s key January jobs report, allowing the pair to extend its upward grind for now.
GBP/USD hits three-day peaks, targets 1.3700
GBP/USD is clocking decent gains at the start of the week, advancing to three-day highs near 1.3670 and building on Friday’s solid performance. The better tone in the British Pound comes on the back of the intense sekk-off in the Greenback and despite re-emerging signs of a fresh government crisis in the UK.
USD/JPY recedes to multi-day lows near 155.50
USD/JPY is pulling back sharply at the start of the week, slipping back toward the 155.50 area as speculation mounts that authorities could step in to rein in further Yen weakness. That narrative gained traction after PM S. Takaichi secured a landslide victory in Sunday’s election, stoking expectations of a tougher line in defence of the domestic currency.
Editors’ Picks
EUR/USD climbs to two-week highs beyond 1.1900
EUR/USD is keeping its foot on the gas at the start of the week, reclaiming the 1.1900 barrier and above on Monday. The US Dollar remains on the back foot, with traders reluctant to step in ahead of Wednesday’s key January jobs report, allowing the pair to extend its upward grind for now.
USD/JPY recedes to multi-day lows near 155.50
USD/JPY is pulling back sharply at the start of the week, slipping back toward the 155.50 area as speculation mounts that authorities could step in to rein in further Yen weakness. That narrative gained traction after PM S. Takaichi secured a landslide victory in Sunday’s election, stoking expectations of a tougher line in defence of the domestic currency.
Gold treads water around $5,000
Gold is trading in an inconclusive fashion around the key $5,000 mark on Monday week. Support is coming from fresh signs of further buying from the PBoC, while expectations that the Fed could turn more dovish, alongside concerns over its independence, keep the demand for the precious metal running.
Crypto Today: Bitcoin steadies around $70,000, Ethereum and XRP remain under pressure
Bitcoin hovers around $70,000, up near 15% from last week's low of $60,000 despite low retail demand. Ethereum delicately holds $2,000 support as weak technicals weigh amid declining futures Open Interest. XRP seeks support above $1.40 after facing rejection at $1.54 during the previous week's sharp rebound.
Japanese PM Takaichi nabs unprecedented victory – US data eyed this week
I do not think I would be exaggerating to say that Japanese Prime Minister Sanae Takaichi’s snap general election gamble paid off over the weekend – and then some. This secured the Liberal Democratic Party (LDP) an unprecedented mandate just three months into her tenure.
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