UK gilts jump amid ongoing Brexit negotiations; investors eye November consumer price inflation

The UK gilts jumped Monday as Britons remain worried over claims that their rights have been protected by the Brexit deal sealed by Theresa May and Jean-Claude Juncker. One of the biggest fears of such Britons is that they will remain “landlocked” in the country in which they now live, unable to move across borders to work for meetings, or for business contracts.

The yield on the benchmark 10-year gilts, slumped 4-1/2 basis points to 1.23 percent, the super-long 30-year bond yields plunged 4 basis points to 1.80 percent and the yield on the short-term 2-year traded 2 basis points lower at 0.48 percent by 11:15GMT.

While focus this week will remain on Brexit – with the EU leaders’ summit on Thursday and Friday set to give the green light to moving talks onto transition and longer-term issues in the New Year –   other economic events will also gain attention. Most notably, the MPC will meet, with the policy statement to be published on Thursday. Having last month raised Bank Rate to 0.5 percent, this time the committee will keep policy unchanged, merely taking stock of recent developments. Policymakers are likely to acknowledge that the latest inflation figures surprised on the downside.

And while there is significant uncertainty about growth momentum in the current quarter, with business surveys and consumer spending indicators sending mixed signals and the NIESR GDP nowcast for the three months to November remaining at 0.5 percent 3M/3M, they will expect GDP growth to have remained relatively subdued. In addition, while Friday’s first-phase Brexit deal has reduced the tail risks of a disorderly Brexit, uncertainty related to the UK’s future relationship with the EU persists.

This week will be no less busy on the data front, with figures due on inflation (tomorrow), the labour market (Wednesday), and retail sales (Thursday). The headline CPI rate is expected to have moved sideways at 3.0 percent y/y for a third consecutive month, while the core rate looks likely to have eased by 0.1ppt to a four-month low of 2.6 percent y/y. With regard to the labour market, the headline three-month employment growth rate for October is set to have remained weak, most likely in negative territory, but we might well see a decline in the unemployment rate to a new forty-two-year low of 4.2 percent.

Finally, retail sales are likely to have been slightly stronger in November, but this will not change the underlying weak picture for consumer spending. Indeed, the expected monthly increase would still leave retail spending only slightly up compared to a year ago, having last month reported the first annual decline in four and a half years.

Meanwhile, the FTSE 100 traded 0.60 percent higher at 7,436.50 by 11:20 GMT, while at 11:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at 14.20 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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