Central bankers are increasingly focusing on persuading everyone that inflation is set to turn higher, however the data continues to tell a different story, at least in the US. With a lack of tier one US data this week attention will turn to UK and Eurozone inflation data to drive sentiment. We look at the outlook for forex, equities and commodities.
Deciphering the outcome of the Brexit negotiations is anyone’s guess at the moment. For what it is worth, I expect that in traditional European Union negotiating style it will go down to the wire, with a late night caffeine-fuelled session before everything is finalised. And that’s just the transition deal! In all seriousness though, progress is slow, as anyone with a reasonable expectation of all things European would understand (remember Greece?), with both sides holding firm on even the initial stages of agreement (notably the divorce bill). Headlines are driving the outlook for sterling and as long as you stay close to the newsflow, there is room for profitable trading. Comments on the speed of the progress either positive (sterling up) or negative (sterling down) moves the market. Also movement towards a decisive 2 year transition deal would help smooth the eventual exit and could also be sterling positive. Both factors played out over the course of a number of hours last Thursday and reflected the case in point. Increased volatility and sharp swings on sterling. However, Brexit will give way to inflation to be a key driver of sterling this week as the CPI data and wage growth numbers are released. Last monetary policy meeting showed the Bank of England suggesting that slack in the economy had decreased and with inflation expected to tick higher on the headline back to 3.0% the pressure will mount once more for a rate hike in the early November meeting.