Friday October 10, 2014 - 16:38:56 GMT
Share This Story
Lloyds TSB Financial Markets - www.lloydstsb.com/corporatemarkets
ECONOMIC DATA ANALYSIS - MARKET PRICING SHOWS RISING CONCERNS ABOUT LOW INFLATION
ANALYSIS FRIDAY 10 OCTOBER 2014
PRICING SHOWS RISING CONCERNS ABOUT LOW INFLATION
- Weak euro area data
unlikely to alleviate disinflation concerns
- US data expected to
show that economy continues to strengthen
- UK inflation low
for now but labour market data could hint at future constraints
It has been a nervy week for markets. Equities have fallen sharply with the
S&P down by 2% and European markets including the FTSE down by 1-2%. Amid
heightened risk aversion bond prices have rallied. US 10-year Treasury yields
have fallen by around 10 basis points over the past week with yields at one
point below 2.30%. European bond markets, including gilts, have seen
rallies of a similar size with 10-year bund yields hitting new all-time lows.
Meanwhile, the US dollar has softened, albeit marginally, although
most dollar cross rates remain close to year highs.
The key focus remains
on whether sluggish global growth is raising the risk of
disinflation and possibly outright deflation. This is most clearly the case for
the euro area where the headline annual rate of CPI inflation is a mere 0.3%.
In the past week, news of sizeable falls in August German manufacturing output
and exports, the area’s largest and hitherto strongest economy, has added to
these concerns. The news on economic activity remains more positive in the US
and UK. However, with inflation still below target in both and wage growth
sluggish, even in these economies disinflation pressures are seen as
European news in the
coming week seems unlikely to alleviate such
concerns. The final estimate of September euro area inflation(Thurs) is
expected to confirm a rate of 0.3%. Meanwhile, the weak German numbers suggest
that euro area industrial production (Tues)fell sharply in August. The ZEW
survey (Tues) will provide the first indication of activity in October and this
is forecast to show that expectations about future growth in Germany have
fallen to new lows for the year. Finally there are reports that the German
government will cut their economic growth forecasts for this year and next.
about prolonged disinflation in either the US or the UK are less
justified. With both economies seemingly growing above trend and their labour
markets tightening, we believe there is little prospect of a sustained drop in
inflation in either. That said, strong currencies and weak commodity prices
point to short-term downside risk for inflation. However, the key metric for
both the Fed and the BoE will be domestic inflation pressures and, in
In the UK,
there will be further news on this next week. Inflation data on Tuesday
are forecast to remain very benign with annual CPI inflation expected to have
moderated further to 1.4% in September, while PPI inflation will be held down
by weak oil prices. However, Wednesday’s labour market data could provide hints
of constraints ahead. Another sizeable fall in unemployment is expected for
August and 3-month annual earnings growth is likely to tick up to 0.9%. With
some survey evidence suggesting that the official measure is underestimating wage
pressure, the MPC will over the next few months be looking closely for any sign
of a pickup.
absence of significant US data releases this week caused market
participants to read a lot into the September FOMC minutes and some comments by
Fed officials on the potential dampening impact of a strong dollar on
inflation. We would emphasise that the signs are that most FOMC members still
expect to start raising interest rates around the middle of next year. This
week will give the markets much more data to digest and we would expect these
to largely point to continuing robust growth. September retail sales growth
(Weds) is predicted to slow from August but this is primarily due to weaker car
sales following the previous month’s surge. Industrial production (Thurs), and
the Empire state (Wed) and Philli (Thurs) surveys should point to strong gains
in industrial activity in September and October. Lastly, housing data (Fri) are
expected to show an upturn in growth in that sector.
This document, its
contents and any related communication (altogether, the 'Communication') does
not constitute or form part of any offer to sell or an invitation to subscribe
for, hold or purchase any securities or any other investment. This
Communication shall not form the basis of or be relied on in connection with
any contract or commitment whatsoever. This Communication is not intended to
form, and should not form, the basis of any investment decision. This Communication
is not and should not be treated as investment research, a research
recommendation, an opinion or advice. Recipients should conduct their own
independent enquiries and obtain their own professional legal, regulatory, tax
or accounting advice as appropriate. Any transaction which a recipient of this
Communication may subsequently enter into may only be on the basis of such
enquiries and advice, and that recipient’s own knowledge and experience. This
Communication has been prepared by, and is subject to the copyright of, Lloyds.
This Communication may not, in whole or in part, be reproduced, transmitted,
stored in a retrieval system or translated in any other language in any form,
by any means without the prior written consent of Lloyds. This Communication is
provided for information purposes only, and is confidential and may not be
referred to, disclosed, reproduced or redistributed, in whole or in part, to
any other person. This Communication is based on current public information.
Whilst Lloyds TSB ank plc (“Lloyds TSB”) and
Bank of Scotland plc ("Bank of Scotland") have exercised reasonable
care in preparing this material and any views or information expressed or
presented are based on sources it believes to be accurate and reliable, no
representation or warranty, express or implied, is made as to the accuracy,
reliability or completeness of the facts and data contained herein.
This material has
been prepared for information purposes only and Lloyds TSB, Bank of Scotland,
their directors, officers and employees are not responsible for any
consequences arising from any reliance upon such information. Under no
circumstances should this material be treated as an offer or solicitation to
offer, to buy or sell any product or enter into any transaction. If you receive
information from us which is inconsistent with other information which you have
received from us, you should refer this to your Lloyds TSB or Bank of Scotland
Relationship Manager for clarification.
Lloyds Bank Corporate
Markets, Lloyds TSB Corporate Markets and Lloyds TSB are trading names of
Lloyds TSB Bank plc, Lloyds TSB Scotland plc and Bank of Scotland plc. Lloyds
TSB Bank plc. Registered Office: 25
Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065.
Lloyds TSB Scotland plc. Registered Office: Henry Duncan House, 120 George Street, Edinburgh EH2 4LH.
Registered in Scotland
no. 95237. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no.
SC32700. Authorised and regulated by the Financial Services Authority under
registration numbers 119278, 191240 and 169628 respectively.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."