Europe Up Ahead Of BOE Inflation Report

European markets are tracking their gains from the US markets and set to rise once again on the back of the Janet Yellen speech. Traders certainly welcomed her yesterday, and her testimony has increased the optimism amid investors that the Central bank will keep the interest rate lower for an extended length of time. She certainly has made a good impression for the markets, and proved the she knows it well, how to take measured steps in maintaining the market expectations.

Having said that, she was also wise enough to keep her cards close to her chest, as we said yesterday, and did not reveal anything new, which the market participants did not know already. At the same time, we do have assurance that the Feds do want to reconsider their unemployment threshold, as growth and inflation is still far enough from their desired level. We think this is triumphing the markets today. The sanguinity for the traders does not stop here, another positive news was the resolution over the US debt ceiling and the can was kicked away for another year.

The Chinese economic data released overnight is also adding further steam for the bulls today. The data was certainly a positive news, after a long time, for the second biggest economy of the world, which has dragged many traders out of the market, due to the growth concern. The trade data showed that the country’s import and export has increased by nearly 10% during January, which is a good news for investors.

Back in Europe, we do have the Bank of England forward guidance today, and it seems like both the Fed and Mark Carney have their backs against the wall, when it comes to their forward guidance, because the unemployment threshold fell at a faster pace than they expected and only 0.1% away from their target. We think that Mr Carney may have to tweak his forward guidance after the inflation report, despite the fact he adopted more than one mandate back in August. The most important aspect during his guidance will be to gauge the elements which he may need to amend. However, we do not think that the bank will amend its unemployment threshold level, as this would hurt the bank’s credibility, given that the bank has not accomplished its inflation target for the past year. Thus, perhaps, he may just persist and stay storm arm, to keep the interest rate at current level and may use the concept of average wage growth with respect to price inflation