Talking Points
JPY LEI in line
UK BOE minutes show 6-1 split
Will housing dive further in US?
Both yen and the euro remained nearly motionless, with charts of overnight price action looking like an electroencephalogram of a person peacefully fast asleep. Indeed for most of Asia and Europe sessions EUR/USD barely wavered more than 15 points oscillating between 1.2780 1.2795 while the yen carved out a tiny 115.90-116.15 range. Lack of any market moving news and lack of volume were responsible for this static price action with most market players these days gazing at the azure waters of the Hamptons or St. Tropez rather than staring at their computer screens.
The price action in the pound however was not nearly as placid with cable dropping more than 80 points off yesterdays highs, as better that expected news on the employment front was offset by relatively dovish tone of the BOE minutes. UK employment picture showed surprising resilience in the labor markets with unemployment rolls increasing by only 2K versus 5K forecast while wages climbed 4.3% versus 4.1% expected. The employment news suggests that the UK economy continues to plow forward, unhampered for the time being by the rise in energy prices. But the latest data hardly creates an unequivocal picture inflationary, runaway growth. The uncertainty over the true state of UK economic affairs was reflected in the latest discussions of the MPC as revealed by the BOE minutes which revealed a 6-1 vote with most members unconvinced that a series of rate hikes was necessary. Indeed we have long argued that the August BOE rate hike was preventative in nature and not necessarily indicative of a new tightening regime. While tonights labor market news provided cable bulls with some ammunition, the BOE will likely need far more convincing data including evidence of a marked pick up in consumer demand before initiating further rate hikes.
