Bolstered by firm UK inflation data, sterling vaulted to a 26-year high as financial markets resume speculation of higher lending rates. Ticking as high as $2.0459, sterling ascended to levels not seen since June 1981 after the Office for National Statistics stated annual consumer prices increased 2.4. Core readings, which exclude volatile goods such as energy, food and tobacco, printed at ten year highs of 2 percent and stoked inflation expectations.
[B][I]UK Inflation Fears Push Pound to New Highs[/I][/B]
Falling utility bills helped push inflation in June to its lowest in eight months, official data released on Tuesday showed. Nevertheless, the British pound jumped to a fresh 26 year high above $2.04 as traders noted that the deceleration was as not as sharp as expected and that core? inflation - a guide to underlying price pressures - rose at its fastest pace in more than ten years.
[I]-Source: Financial Times[/I]
[B][I]Russia Vows Adequate Response to Expulsions[/I][/B]
Russia promised on Tuesday an “adequate and appropriate” response very soon to Britain’s expulsion of four of its diplomats but said it would avoid jeopardizing the interests of ordinary citizens or businessmen. The government said on Monday it was throwing out the diplomats in retaliation for Moscow’s refusal to extradite the key suspect in the murder last year in London of former Russian security agent Alexander Litvinenko. Russia’s constitution bans extradition.
[I]-Source: Reuters UK[/I]
[B][I]Barclays Should Abandon ABN Amro Bid, Analysts Say[/I][/B]
Barclays Plc should abandon its proposed acquisition of ABN Amro Holding NV because it won’t be able to beat a rival bid led by Royal Bank of Scotland Group Plc, analysts at Sanford C. Bernstein & Co. said.
[B][U]UK Market Activity:[/U][/B]
[I][U]Currency Markets: [/U][/I][B]GBP[/B]
Bolstered by firm UK inflation data, sterling vaulted to a 26-year high as financial markets resume speculation of higher lending rates. Ticking as high as $2.0459, sterling ascended to levels not seen since June 1981 after the Office for National Statistics stated annual consumer prices increased 2.4. Core readings, which exclude volatile goods such as energy, food and tobacco, printed at ten year highs of 2 percent and stoked inflation expectations. Fetching $2.0443 in the New York afternoon, the markets are busy pricing a 50-50 chance of more BoE hikes while others, including Paul Robinson, senior sterling strategist at Barclays Capital, have a contrarian take on the UK rate debate. He contends that the Bank of England will hold rates for the next few meetings to watch economic developments and expects that the Fed will be the one tightening with forecasts for lending rates at 5.75 percent by years end.
[I][U]Equity Markets:[/U][/I] [B]FTSE 100[/B]
Leading London blue-chips dipped nearly 1 percent for the session as inflation fears prompted traders to take profits on speculation of impending rate hikes. Still above the BoE 2 percent ceiling, consumer prices rose 0.2 percent on the month bringing down the annual rate to 2.4 percent - just shy of expectations of a sharper drop. Dragging the FTSE 100 lower were shares in the world?s third-largest platinum company, Lonmin, which tumbled 4.7 percent to 3799p following a Deutsche Bank downgrade. Also suffering a downgrade from the German investment bank was global miner BHP Billiton which slipped 2.6 percent after their rating was cut from “buy” to “hold”.
[I][U]Fixed-Income Markets:[/U][/I] [B]10-Year Long Gilt[/B]
Global yields are seen firmer across the board as the 10-year gilts track comparable US treasuries up 3bp to 5.479 percent. Price action was choppy in the debt markets as traders digested 10-year high core consumer inflation readings. Looking ahead to a full plate of data this week, traders place positions ahead of the Bank of England MPC meeting minutes, which are sure to move the markets.