Cold water poured on UK rate rise speculation

Bank of England Governor Mark Carney sounded hawkish in recent statements, but he left investors disappointed on "Super Thursday."
 
Throughout the week investors were looking forward to a clear sign that the central bank is moving closer to raising interest rates, but they were left short-changed as economic forecasts suggest that the bank is in no rush.
 
As was widely expected, the Bank of England left rates unchanged at 0.5%. The minutes struck a slightly more dovish tone, noting that “in light of the reduction in oil prices and appreciation of sterling over the past three months, it appeared that the increase in inflation over the following year would be more gradual than had previously been supposed.”
 
Minutes disappointingly showed that only one member of the Monetary Policy Committee, Ian McCafferty, was in favour of a rate rise. Investors were hoping for at least three members to give the thumbs-up. Sterling got sold off as the news hit the wire, especially after the bank lowered its 2015 and 2016 inflation forecast because of lower commodity prices and a stronger pound – and that's starting to affect prices, and could offset the export boost from stronger global growth.

US Fed lies in wait for rate rises

Despite August being holiday season in the US, this month’s non-farm payrolls will be even more important after the Federal Reserve signalled in its July meeting that it wants to see more improvement in the job market before deciding on an interest rate rise. The non-farm payroll report will be released with its associated unemployment, average hourly earnings and labour force participation readings. US consumer credit data for June is published later tonight.
 
Investors will want to see strong job growth in today’s (7 August) and next month’s employment reports. If the labour market continues to generate more than 200,000 jobs a month then the unemployment rate will move towards 5% by year end. This in turn will support the case for a lift-off this year, but the argument against it is clearly the lack of any abnormal wage pressure. Average hourly earnings are expected to tick up to 2.3%
 
Earnings season is wrapping up in the US, but Berkshire Hathaway (the world’s fifth largest public company) is in the news today. Share prices seem on track for their first annual decline since 2011, but given the diversity of Berkshire Hathaway’s portfolio that’s unlikely to trouble company head Warren Buffett too much. 

Frenetic Friday for Europe

Today’s calendar is very busy as we start the weekend. We’ll get German industrial production and trade data, French industrial and manufacturing production and trade data, and the European session will finish with the UK’s trade balance.
 
Over the weekend itself, meanwhile, there’s Chinese trade data out on Saturday and CPI/PPI on Sunday – which will be closely looked at as we enter a new week. 

Have a great weekend.