The pound was on a great rollercoaster ride yesterday, starting the day around 1.53 against the dollar. We started off with a boost for sterling up to 1.54 as SABMiller PLC (L:SAB) recommended the purchase of Anheuser-Busch Inbev SA (N:BUD) shares at £44. This was quickly reversed as the inflation figures came into focus with the headline figure showing the UK back in deflation. There was further trouble as the Bank of England’s Vlieghe and McCafferty testified to the Treasury Select Committee on the economy, sending sterling back close to 1.52.
The suggestion is that rate hikes would not come until inflation is on a firmer footing. There was also talk of growth being steady but not great and uncertainty over slack in the economy. None of this went down well for sterling with fresh eight month lows seen in GBP/EUR. In reality, the deflation number is likely to be short lived as the effects of oil prices drop out of the calculations, though the comments from MPC members suggest it will be some time before rates move, and as such is likely to weigh on sterling. This morning we have the unemployment rate, claimant count and earnings figures which are expected to show a slight rise in claimants, but a slight increase in wages, which will keep the Bank of England on its toes.
We had similar issues with weaker inflation numbers, with German CPI coming in as expected at -0.2%. The concern remains that the central bank may have to provide further stimulus in order to drive growth and ultimately inflation back towards the ECB target. There were similar global echoes from China with inflation at 1.6%, lower than the expected 1.8%. Given the ongoing concerns of a slowing China sapping global growth, and the potential need for further action, it’s not surprising to find a sea of red in equities this morning, with the Shanghai Composite down 1% and the Nikkei 225 losing 2%.
Industrial production from Europe and US retail sales are the biggest pieces of data out today, with expectations of weakening production within Europe and flat retail sales from Europe. There are further noises from the other commodity currencies with oil falling back below $50 a barrel again, and both the Australian and New Zealand central banks looking more likely to provide further easing to boost their economies.