LONDON (Reuters) - While the Bank of England is widely expected to keep rates on hold at 1100 GMT today, the focus will be on how far it goes in talking up the prospect of a future rate hike given the UK's above-target inflation and a jobless rate at its lowest in four decades.
The other focus of scrutiny will be its chief economist, Andy Haldane, who has said he will back a hike this year if inflation goes up. That would shift the balance in the bank’s Monetary Policy Committee to 6-3 against a rate increase from 7-2 now - likely prompting markets to recalibrate by pushing sterling higher.
After this week's street protests in France against Emmanuel Macron's planned labour reforms brought fewer people out than on past occasions, there was more good news for the president this morning as the OECD think tank gave a broadly positive account of the French economy. While warning it still had to find ways of bringing down its public spending - the highest of any developed economy - it revised up its growth forecast to 1.7 percent this year, up from a measly 1.1 percent last year and the best rate since 2011. If this is a fair tailwind, the question now is how Macron uses it.
Today marks the official start of campaigning for the - officially illegal - referendum on Catalonian independence. Despite the fact that the Spanish government has said the result of the Oct. 1 vote will be null and void, around one million Catalans turned out at a pro-independence rally on Monday and Spanish debt is starting to under-perform as financial markets worry about potential political uncertainty down the road.
World markets are on the back foot on Thursday after sub-forecast Chinese economic soundings for August, Apple’s overnight drop of 1.2 percent following its new iPhone launch and wariness of hawkish signals later in the day from a Bank of England grappling with above-target inflation.
China’s industrial, retail and investment growth last month all came in below consensus expectations, rekindling concerns that monetary tightening is slowing the world’s second largest economy despite a surprisingly brisk first half. Shanghai, HK and Tokyo stocks all ended in the red overnight in a further pullback from this week’s early rallies. South Korea’s Kospi outperformed and gained 0.7 percent.
Apple’s retreat didn’t stop the broader U.S. market hitting fresh records, with some investors encouraged by U.S. President Trump’s attempt to re-ignite the stalled tax reform programme. U.S. Treasury yields popped above 2.20 percent overnight for the first time in three weeks and the dollar’s DXY index rallied. U.S. consumer inflation data is out later, though there were precious few signs of long-absent price pressures in the producer price report released on Wednesday.
Sterling stalled ahead of the BoE decision later however after surging this week to its highest levels against the dollar in a year. While no one expects the UK central bank to tighten monetary policy, above-forecast and above target August inflation readings of 2.9 percent this week and news that the UK jobless rate fell to its lowest since 1975 may force policymakers to signal some concern about price pressures and the impact on inflation of sterling weakness over the past year.
The conundrum for the Bank is that economic activity is weakening and wages and earnings continue to lag inflation. Markets will watch closely for signs that the Bank wants to protest longer-term money market and futures pricing that sees no interest rate rise for two years or more.
The Swiss National Bank also meets, facing the opposite currency problem of an excessively strong franc, but few see it changing its already super-easy monetary settings before clearer signals from the European Central Bank next month on the course of its massive bond-buying campaign.
Elsewhere, Brent crude oil prices climbed above $55 for the first time since April. Bitcoin continued to fall after its biggest one-day loss since July on Wednesday amid concerns about Chinese and international regulatory clampdowns on cryptocurrencies and warnings from the likes of JPMorgan chief Dimon about “fraud” and bubbles in bitcoin.
editing by John Stonestreet