UK gilts gain ahead of September consumer inflation, BoE Governor Carney’s speech

The UK gilts gained Monday as investors look forward to the release of the country’s consumer price-led inflation index for the month of September, scheduled on October 17, besides BoE Governor Mark Carney’s speech, due on the same day by 10:15GMT, which will provide further direction to the debt market.

The yield on the benchmark 10-year gilts, rose nearly 1 basis point to 1.39 percent, the super-long 30-year bond yields climbed 1 basis point to 1.93 percent and the yield on the short-term 2-year also traded nearly 1 basis point higher at 0.48 percent by 09:45 GMT.

This week will be an important one for the UK, passing a key milestone in the Brexit negotiations and bringing several data reports that will be of significant relevance to the BoE’s forthcoming monetary policy announcement on November 2. On Brexit, PM May and lead UK negotiator Davis are in Brussels today seeing Commission President Juncker and EU negotiator Barnier.

But the key event will be Friday’s meeting of EU27 leaders, who will decide whether to offer anything more than just a decision to start “internal preparatory discussions” without the UK about the transition deal and longer-term future relationship. The nature of the leaders’ statement seems likely to have an important bearing on sterling.

Data-wise, tomorrow will bring September’s inflation data, with headline CPI expected to rise 0.1ppt to 3.0 percent y/y, which would be the highest rate in more than five years, and core CPI expected to rise by the same amount to 2.8 percent y/y, which would be the highest since end-2011. The latest labor market data, due on the following day, are expected to show ongoing steady jobs growth, the unemployment rate unchanged at a 42-year low of 4.3 percent, but also that wage growth remained subdued in nominal terms, and significantly negative in real terms, in the three months to August.

The retail sales report for September, due on Thursday, is expected to show a small drop in total sales, but that would still leave them up more than 1 percent q/q in Q3 – arguably strong enough to persuade the MPC to raise rates next month. But also relevant to BoE-watchers’ judgments about what is likely to happen at the November policy meeting will be the testimonies of Governor Carney, as well as new MPC members Ramsden and Tenreyro, before the House of Commons Treasury Committee tomorrow. Finally, in the bond market, the DMO will sell 10-year gilts on Thursday.

Meanwhile, the FTSE 100 traded 0.06 percent higher at 7,540.25 by 09:50 GMT, while at 09:00GMT, the FxWirePro's Hourly Pound Strength Index remained slightly bullish at 77.10 (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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