Week Ahead: Is hot UK inflation here to stay?

Week Ahead

Quite a lot to look out for in terms of big data this week. First up, we have UK CPI data. Is inflation sticking around for longer than we thought? UK and EU flash PMIs come too at a time when it looks like economic activity is starting to slow down. It’s also US earnings season with leading tech players reporting in. 

UK CPI: circling hawks and hot prints 

On the data front, one of the week’s big releases are the latest UK Consumer Price Index numbers. 

September’s print showed that UK inflation had far exceeded the Bank of England’s 2% target in August. Consumer prices surged by 3.2% in the twelve months up to that month official data showed – the highest month-on-month increase since records began in 2017. 

The Office for National Statistics said the surge was “likely to be a temporary change” and flagged the government’s Eat Out to Help Out (EOHO) scheme may have been a contributing factor to the jump. 

“In August 2020 many prices in restaurants and cafes were discounted because of the government’s Eat Out to Help Out scheme, which offered customers half-price food and drink to eat or drink in (up to the value of £10) between Mondays and Wednesdays,” the ONS said in its statement. 

“Because EOHO was a short-term scheme, the upward shift in the August 2021 12-month inflation rate is likely to be temporary.” 

The official line has been that higher prices are transitionary – but voices from within the Bank of England warn it could be here for longer than first thought.  

The BoE’s new Chief Economist Huw Pill has said he believes hot inflation could be sticking around. 

“In my view, that balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long-lasting than originally anticipated,” Pill said in September. 

Pill lends his voice to the hawkish chorus steadily building in the Bank of England’s council. A number of MPC members are calling for a rate hike early next year. As such, another high CPI print in September may lead to a turning up of the volume from the hawks. 

PMI rush to signpost economic slowdowns? 

It’s also the time of the month when flash PMI scores start landing thick and fast. 

British and EU data is released this week off the back of last month’s reports which indicate growth is slowing in these two major economies. 

Let’s start with the UK. The IHS Markit flash composite for September indicated output had dropped to the lowest level since February. The UK’s score came in at 54.1 that month, slipping from 54.8 in August. 

Recovery appears to be stalling as we head into the winter months. Lower economic activity matched with higher inflation does not create the most positive of outcomes for Britain’s economy going forward.  

The PMI for the services sector fell to 54.6 in September from 55.0 in August, its lowest level since February when Britain was still in lockdown. Manufacturing fell from 60.3 to 56.4, which is again the lowest level since February. 

It’s the same story across the Channel. European growth was stymied by supply constraints pushing input costs the 20-year highs throughout the EU last month. Will this month’s PMI data show the same? 

In terms of scores, the IHS composite reading showed economic growth had dropped to a five-month low in September. The EU scored 56.1 that month against 59.0 in August. 

This was well below market forecasts. A Reuters poll indicated economists and analysts believed output would slow, but at the much lower rate of 58.5. 

Supply line squeezes coupled with a general slowing of GDP growth appear to be the main factors here. The EU economy is approaching its pre-pandemic size, so a slowdown was always on the cards, but not one quite so drastic. 

I would expect to see a lower EU PMI print on Friday when the latest data lands. 

Wall Street earnings keep on coming – enter the tech stocks 

Next week, we’ll be in the thick of it when it comes to Q3 earnings season. Big banks, including Goldman Sachs, Citigroup, and JPMorgan, kicked things off for us last week. Now, it’s the turn of some big tech mega caps to share their latest financials. 

Netflix and Tesla are the two headliners to watch out for this week. Both reported strong Q1 and Q2 figures but have advised performance may start to drop off in 2021’s third quarter. 

For more information on which companies are reporting and when be sure to check out our US earnings season calendar. 

Major economic data 

Date  Time (GMT+1)  Asset  Event 
Mon 18-Oct  3:00am  CNY  GDP q/y 
  3:00am  CNY  Retail Sales y/y 
  2:15pm  USD  Industrial Production m/m 
  3:30pm  CAD  BOC Business Outlook Survey 
Tue 19-Oct   1:30am  AUD  Monetary Policy Meeting Minutes 
       
Wed 20-Oct  7:00am  GBP  CPI y/y 
  1:30pm  CAD  CPI m/m 
  1:30pm  CAD  Common CPI y/y 
  1:30pm  CAD  Median CPI y/y 
  1:30pm  CAD  Trimmed CPI y/y 
  3:30pm  USD  Crude Oil Inventories 
       
Thu 21-Oct  1:30pm  USD  Philly Fed Manufacturing Index 
    USD  Unemployment Claims 
       
Fri 22-Oct  7:00am  GBP  Retail Sales m/m 
  8:15am  EUR  French Flash Manufacturing PMI 
  8:15am  EUR  French Flash Services PMI 
  8:30am  EUR  German Flash Manufacturing PMI 
  8:30am  EUR  German Flash Services PMI 
  9:00am  EUR  Flash Manufacturing PMI 
  9:00am  EUR  Flash Services PMI 
  9:30am  GBP  Flash Manufacturing PMI 
  9:30am  GBP  Flash Services PMI 
  1:30pm  CAD  Core Retail Sales m/m 
  1:30pm  CAD  Retail Sales m/m 
  2:45pm  USD  Flash Manufacturing PMI 
  2:45pm  USD  Flash Services PMI 
  Tentative  USD  Treasury Currency Report 

 

Key earnings data 

Tue 19 Oct  Wed 20 Oct  Thu 21 Oct  Fri 22 Oct 
Philip Morris International (PM)   Verizon Communications Inc (VZ)   AT&T (T)   American Express (AXP)  
       
Johnson & Johnson (JNJ)   International Business Machines (IBM)  Intel Corp (INTC)   Schlumberger Ltd (SLB)  
       
Procter & Gamble (PG)  Tesla Inc (TSLA)   Snap Inc A (SNAP)    
       
Netflix Inc (NFLX)        

 

Monthly recap: German elections, hot UK inflation and NFP miss

We recap some of the key market movers from September in this monthly round-up. 

Monthly markets recap: September 2021

Germany waves goodbye to Angela Merkel in tight federal elections 

After sixteen years at the helm, Angela Merkel will step down as German Chancellor following late September’s closely contested German elections. 

It’s a hugely fragmented result. Pretty much all parties did worse than they thought. The SPD is the majority party, but they’re still very close to the CDU to really have a massive advantage. You could only separate them with a cigarette paper really.  

The Green’s, after topping the polls four months ago, came in third while the FDP came in fourth.  

Olaf Scholtz, the leader of the SPD, now has his work cut out trying to turn these close results into a working coalition. But what we’ve seen is what our political guru and Blonde Money CEO Helen Thomas calls a Code Red for Germany – that is a shift to the left with a bit of a green hint too. 

What the next German federal government looks like now is up for debate. The Green Party is probably going to be central, after doubling their Reichstag presence, but it’s out of the CDU and FDP to see who becomes the third coalition partner. See Helen Thomas’ election round-up below for more information. 

Nonfarm payrolls’ massive miss 

Nonfarm payrolls came in well below expectations in a wobbly US jobs report.  

In August, 275,000 new jobs were added to the US economy, falling far below the 750,000 forecast. 

The unemployment rate dropped to 5.2% while labour force participation stayed unchanged at 61.7%. Hourly earnings rose 0.6% in August, surpassing market predictions of a 0.3% rise. 

Jerome Powell and the Federal Reserve keeps a close eye on the jobs report. Labour market participation has been one of the key metrics the Fed has been looking at throughout the pandemic to decide on whether to start tapering economic support. 

We know that Jerome Powell and the Fed loves a strong jobs report. But we also know that tapering is on its way anyway – likely in November. August’s job data may not have impacted decision making too much, given the tapering signals were made long before its release.  

However, Fed Chair Powell still believes the US is still far from where he’d comfortably like employment to be. 

Speaking last week, Powell said: “What I said last week was that we had all but met the test for tapering. I made it clear that we are, in my view, a long way from meeting the test for maximum employment.” 

A recent survey taken by the National Association for Business Economics showed 67% of participating economists believed job levels won’t reach pre-pandemic levels until the end of 2022. 

UK inflation jumps 

August’s CPI data, released in September, showed UK inflation had reached 3.2%. That’s the highest level since 2012. 

Rising from 2% in July, the latest CPI print also showed a huge month-on-month rise in prices. Inflation soared well clear of the Bank of England’s 2% target – although the UK central bank did say it believed inflation would hit 4% in 2021. 

However, some market observers believe there is a risk that inflation will overshoot even the 4% level. 

The question is how will the BoE respond? A more hawkish tilt could be possible.  

Markets.com Chief Markets Analyst Neil Wilson said: “Unanchored inflation expectations are the worst possible outcome for a central bank they’ve been too slow to recognise the pandemic has completely changed the disinflationary world of 2008-2020. 

“My own view, for what it’s worth, is that the Bank, just like the Fed, has allowed inflation overshoots to allow for the recovery, but it’s been too slow and too generous. Much like the response to the pandemic itself, the medicine (QE, ZIRP) being administered may be doing more harm (inflation) than good (growth, jobs).” 

China intensifies its crypto crackdown 

Bitcoin was rocked towards the end of September after being hit with a body blow landed by the People’s Bank of China. 

The POBC has ruled that all cryptocurrency transactions in China are illegal. That includes all transactions made by Chinese citizens domestically and those coming from offshore and overseas exchanges. 

BTC lost over 8% and nearly dropped below the $40,000 mark on the news from Beijing. It has subsequently staged a comeback, but this latest move from China tells us a couple of important things about crypto. 

Number one: volatility is ridiculous. The fact that Bitcoin is still so susceptible to big swings on both positive and negative news shows it’s still very volatile. It seems hard to see a future driven by crypto right now if such price swings will be the norm. If this is the case, let’s hope it calms down in the future. 

Secondly, it’s that central banks are still wary of digital finance. In China’s case, it loves control.  

Beijing’s official stance is that cryptocurrency is a) illegitimate, b) an environmental disaster, and c) something it cannot control completely. Freeing finances from government oversight is the entire point of decentralised finance (DeFi) after all. In a country as centralised as China, that’s a no-go.  

China has pledged to step up its anti-crypto, anti-mining efforts further. This could cause major ripples for Bitcoin and the digital finance sector as a whole. A significant chunk of global token supply comes from Chinese miners. Someone else will have to pick up the slack. 

Oil & gas prices stage major rally 

A global gas shortage and tighter oil supplies pushed prices into overdrive towards the end of September. 

Natural gas, in particular, was flourishing. At one point, gas had climbed above $6.30, reaching highs not seen for three years. Basically, there’s not enough gas to go around. High demand from the UK and EU is pushing prices up, while the US, which is meant to be in injection season, is also suffering. Asian demand is also intensifying. 

In terms of oil, a supply squeeze coupled with higher demand caused by major economies reopening is putting a support under oil prices.  

Traders are also confident. Energy markets are the place to be right now. As such, trader activity appears to be pushing these new highs and is confident regarding the market’s overall strength. 

Goldman Sachs has also revised its oil price targets upwards. 

Goldman said: “While we have long held a bullish oil view, the current global oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts. 

“The current oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts.” 

Week Ahead: Fed meeting to assess inflation landscape

Week Ahead

With the G7 event in Cornwall wrapping up on Sunday, the Federal Reserve meeting is the big event in the markets this week, whilst traders will also be keeping a close watch on high frequency data such as unemployment claims, retail sales and manufacturing indices from the US. Meanwhile UK inflation data will be assessed for any signs of pressures building in prices that could nudge the Bank of England to tighten monetary policy earlier than thought. 

FOMC 

Wednesday’s statement from the Federal Reserve is not expected to feature any fireworks, but it is an important meeting as it will offer clues about the reaction function of the central bank to rising inflation fears. We know the Fed is happy to let inflation run a little hot over the summer as it pins everything on its employment mandate. So, labour market data is arguably more important than inflation numbers right now. On that front the last NFP jobs report was something of a Goldilocks number – not too hot to worry about an early taper of the Fed’s $120bn-a-month bond buying programme, but not so cool as to fret about the recovery. The truth is the Fed is looking at both and this meeting comes at a time of great uncertainty over whether inflation will indeed prove to be as transitory as policymakers believe. 

Minutes from the FOMC meeting in April had the Fed floating a trial balloon, as these indicated some policymakers are thinking about thinking about tapering asset purchases. “A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the minutes said. Members of the FOMC also stressed the importance of “clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases”. Tentative – the question remains: when does the Fed think it’s hit the landing area for the economy, and does inflation take off in the meantime? This week’s meeting is not expected to deliver any surprises – the jobs numbers are positive right now but the labour market is some way off the Fed’s goal, whilst the inflation story is fairly well understood for now.

US economic data 

There is also going to focus on a batch of important high frequency data out of the US, including retail sales for May, producer price inflation and manufacturing indices for the New York and Philadelphia regions. Expectations for retail sales are heating up – last week the National Retail Federation raised its growth expectations for US retail sales in 2021 to between 10.5% and 13.5%. May should show a pick-up in sales after unexpectedly stalling in April as the boost from stimulus cheques faded. An acceleration is expected in the coming months thanks to a huge savings glut and the rapid reopening of the economy. 

UK inflation 

The Bank of England does not think inflation will run away, so Wednesday morning’s CPI print will be closely watched by GBP traders. Although it significantly upgraded its near-term economic forecasts and announced a form of ‘technical’ taper’ of bond purchases at its last meeting, the Bank’s outlook on inflation suggests it will be in no rush to raise rates this year. This is acting as a headwind for sterling – an above-forecast reading could be a tailwind. 

 

Major economic data 

Date  Time (GMT+1)  Event 
Jun 14th  10:00  EZ industrial production 
Jun 15th  07:00  UK unemployment  
  13:30  US retail sales, PPI, Empire State manufacturing index 
  14:15  US industrial production 
Jun 16th  03:00  China industrial production, retail sales, fixed asset investment  
  07:00  UK CPI inflation 
  13:30  Canada CPI inflation 
  15:30  US crude oil inventories 
  19:00  FOMC statement 
  19:30  FOMC press conference 
 Jun 17th  02:30  Australia unemployment 
  08:30  Swiss National Bank statement 
  10:00  EZ final CPI inflation 
  13:30  US unemployment claims, Philly Fed manufacturing index 
Jun 18th  tentative  Bank of Japan statement 

 

Key earnings data 

Date  Company  Event 
Jun 15th  Oracle Corp.  Q4 2022 Earnings 
  On The Beach  Interims 
Jun 17th  Adobe Inc.  Q2 2021 Earnings 
  Whitbread  Trading Update 
  Halfords  Finals 

 

CySEC (EU)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to EUR20,000
  • 1,000,000 insurance cover** 
  • Negative Balance Protection

Products

  • CFD
  • Share Dealing
  • Strategy Builder

Markets.com, operated by Safecap Investments Limited (“Safecap”) Regulated by CySEC under licence no. 092/08 and FSCA under licence no. 43906.

FSC (GLOBAL)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection
  • $1,000,000 insurance cover** 

Products

  • CFD
  • Strategy Builder

Markets.com, operated by Finalto (BVI) Ltd by the BVI Financial Services Commission (‘FSC’) under licence no. SIBA/L/14/1067.

FCA (UK)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to GBP85,000
    *depending on criteria and eligibility
  • £1,000,000 insurance cover** 
  • Negative Balance Protection

Products

  • CFD
  • Spread Bets
  • Strategy Builder

Markets.com operated by Finalto Trading Ltd. Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.

ASIC (AU)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection
  • $1,000,000 insurance cover**

Products

  • CFD

Markets.com, operated by Finalto (Australia) Pty Ltd Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

Selecting one of these regulators will display the corresponding information across the entire website. If you would like to display information for a different regulator, please select it. For more information click here.

**Terms & conditions apply. Click here to read full policy.

Marketsi
An individual approach to investing.

Whether you’re investing for the long-term, medium-term or even short-term, Marketsi puts you in control. You can take a traditional approach or be creative with our innovative Investment Strategy Builder tool, our industry-leading platform and personalised, VIP service will help you make the most of the global markets without the need for intermediaries.

La gestión de acciones del grupo Markets se ofrece en exclusiva a través de Safecap Investments Limited, regulada por la Comisión de Bolsa y Valores de Chipre (CySEC) con número de licencia 092/08. Le estamos redirigiendo al sitio web de Safecap.

Redirigir

Are you lost?

We’ve noticed you’re on the site. As you are connecting from a location in the you should therefore consider re-entering , which is subject to the product intervention measures. Whilst you’re free to browse here on your own exclusive initiative, viewing the site for your country will display the corresponding regulatory information and relevant protections of the company you choose. Would you like to be redirected to ?