As the market digests fresh six-year-high borrowing rates of 5.75 percent, the pound sterling was stoked by further speculation of MPC tightening and interest-rate disparities. Cable traded at 2.0153 in New York as market participants dissected a speech made by BoE policy maker David Blanchflower, in which he noted the “upside risk” to inflation.
[B][U]UK Headlines:[/U][/B]
Due to a combination of growing consumption and lagging output, the International Energy Agency (IEA) expressed to the markets that “oil looks extremely tight in five years time” and there are "prospects of even tighter natural gas markets at the turn of the decade."
http://www.ft.com/cms/s/2d97d75a-2e0c-11dc-821c-0000779fd2ac.html
[I]-Source: Financial Times[/I]
Three men were convicted in the UK of plotting to bomb London?s mass-transit system on July 21, 2005. London is currently on high alert as terrorist fears reach strong levels following recent bombings.
http://uk.reuters.com/article/topNews/idUKL0935658220070709?&src=070907_1036_TOPSTORY_three_guilty_of_21%2F7_bomb_plot
[I]-Source: Reuters UK[/I]
Prices for UK manufacturers increased for a seventh month in June led by rebounding oil prices. Meanwhile, wet weather which destroyed crops helped to accelerate a pick up in food costs. Many market watchers contend that the data is a sign that companies may feed inflation pressures into the economy.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aAhbMKEcOHcY&refer=economy
[I]-Source: Bloomberg[/I]
[B][U]UK Market Activity:[/U][/B]
[I][U]Currency Markets:[/U][/I] [B]GBP[/B]
As the market digests fresh six-year-high borrowing rates of 5.75 percent, the pound sterling was stoked by further speculation of MPC tightening and interest-rate disparities. Cable traded at 2.0153 in New York as market participants dissected a speech made by BoE policy maker David Blanchflower, in which he noted the “upside risk” to inflation. Still shy of its 26-year high of 2.0207 realized on July 4th, the British pound has appreciated three percent versus the greenback this year and six percent against the Japanese yen. Yield searching carry-traders have capitalized on widening interest rate differentials as growth in Europe?s second largest economy remains “robust,” adding to market speculation of future monetary policy tightening.
[I][U]Equity Markets: [/U][/I][B]FTSE 100[/B]
London?s leading equity index tacked on fresh gains, climbing 0.40 percent to 6713.80.
Various FTSE 100 heavy-weights received upgrades, lifting the index higher on the session. British Airways, Europe?s third-largest airline, gained two percent to 442.25 following an upgrade to “buy” from “hold” as broker Panmure Gordon & Co referenced BA?s premium branding and 25-percent share decline since February as reason for their upward revisions. On the flip side, the biggest laggard of the session was Britain?s largest home builder by market capitalization, Persimmon. Shares of Persimmon shed 4.37 percent before closing at 1161, while shares of rival Bovis were sent tumbling to 845 pence after the homebuilder downgraded sales projections as the company forecasted that increasing interest rates and mortgage costs would curb profits.
[I][U]Fixed-Income Markets:[/U][/I] [B]10-Year Long Gilt[/B]
Government debt traders bid up 10-year gilts on softer-than-expected producer price data, with yields on the instrument scraping seven year lows. Rates recovered slightly and ended the day one basis point lower, as the yield on the UK benchmark long bond settled at 5.530. Investors continue to increase their bets on a continuation of the BoE tightening cycle as their sentiment can be reflected in the implied rate on the December futures contract, which is currently at 6.29 percent, up from 6.24 a week ago. The contract is also up 15bp this month alone and, for the past decade, historically averages a 15bp premium to the key borrowing rate.
