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MARKET ANALYSIS 10/09/14

UK’s interest rates may start to rise next spring In his speech at the Trades Union Congress, Bank of England Governor Mark Carney said that market expectations of the first rate hike by spring next year fits the central bank's estimate for the medium-term inflation rate to reach 2%. However, he reiterated BoE’s stance that those increases are likely to be gradual and limited and will be data driven. If indicators suggest the economy is moving faster, rates may rise sooner. The Governor also added that the UK economic recovery has momentum, but the slack in the labor market and the weak wage growth has to improve in order to justify a rate increase.

Today, BoE Gov. Mark Carney and other MPC members will give evidence on the August inflation report to the Treasury Select Committee in Parliament. During the testimony we might see further remarks on the timing of the rate hike, following Tuesday’s speech of Gov. Carney. Furthermore, the Bank’s top officials are expected to discuss the heightened uncertainty surrounding the Scottish referendum and to focus on the latest round of forecasts. Among the participants will be the newcomer Nemat Shafik who should shed some light on her sentiment at the MPC board and give her view on the UK’s economy. Another interesting point will be what Martin Weale has to say, since he was one of the two MPC members that voted for a 25bps rate hike at the August BoE policy meeting. The minutes from the MPC meeting held last month showed that Martin Weale and Ian McCafferty dissented from the majority of views that rates should be kept on hold. Their argument was that the continuing fall in unemployment rate combined with a tight labour market was evidence that wage growth would pick up. Nonetheless, with inflation well below their 2% target and wage growth stagnating, the risks from raising rates too early are greater than the risks of waiting. The minutes from the Bank’s latest policy meeting, released on September 17, just a day ahead of Scottish referendum, could give evidence on the prospect of an early rate hike.

As for the indicators, French industrial production for July is anticipated to have fallen, a turnaround from the previous month. From Norway, we get the CPI for August and the forecast is for the inflation rate to remain near the Norges Bank inflation target of 2.5%, but to slow down, which could prove NOK-negative.

In the US, we get the MBA mortgage approvals for the week ended September 5.

Besides BoE Carney and other MPC members we have two more speakers scheduled on Wednesday. ECB Governing council member Ewald Nowotny and ECB Executive board member Yves Mersch will also speak.

Wednesday, 10 Sep, 2014 / 8:33

Source : http://www.ironfx.com/en/research-and-analysis/fundamental-analysis_10_09_2014

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