It’s been a quiet start to the day in financial markets but things are likely to pick up considerably, with the Bank of England interest rate decision and minutes due and a raft of data to come from the US.
The retail sales report this morning provided further evidence that the UK economy is coping well in the immediate aftermath of Brexit, something the BoE will likely take into consideration when deciding whether to ease monetary policy again this year. The central bank announced a large package of stimulus measures at the last meeting after initial survey data suggested the UK economy was in for a very rough ride. Surveys have since recovered and other data points have been better than expected, giving the BoE some leeway before it has to ease again.
While no further stimulus is expected to be announced at today’s meeting, traders will be looking for clues in the minutes about the possibility of more this year. The BoE previously claimed that another rate cut will follow this year if the economy performs in line with expectations, the question now is whether the economy has performed better or not. Should we see any votes for another rate cut or the minutes suggest one remains likely, it could weigh on the pound which has recovered some of the ground lost since the referendum. The FTSE will also be sensitive to the release, with the weakness in the pound having provided a boost to it over the last couple of months. Traders will also be looking for hints that more bond buying will be announced to offset any weakness in the economy that is likely to follow.
There is also a large amount of economic data to come from the US today, including the August retail sales report, manufacturing data for September, inflation figures and jobless claims. The data is unlikely to influence the outcome of next week’s Fed decision at this stage but it could affect whether they move in December. Retail sales are a huge part of the US economy and while three of the last four months have been very good, the rest of the year has been quite disappointing. Some policy makers, including Lael Brainard, have suggested they want to see more evidence that spending will remain strong before voting for a hike which makes today’s data increasingly important.
For a look at all of today’s economic events, check out our economic calendar.