UK gilts slump on expectations of rise in June retail sales

The UK gilts slumped Wednesday on expectations of a rise in the country’s retail sales for the month of June, scheduled to be released on July 20.

The yield on the benchmark 10-year gilts, plunged 3-1/2 basis points to 1.24 percent, the super-long 30-year bond yields slumped nearly 4 basis points to 1.86 percent and the yield on the short-term 2-year traded nearly 3 basis points lower at 0.27 percent by 08:40 GMT.

In the UK, ahead of tomorrow’s keenly-awaited June retail sales figures, which is expected to show a modest drop, it should be a relatively quiet day for economic news today with no data due for release and little (positive) news likely to emerge from the second round of Brexit negotiations, although the DMO will sell 2023 Gilts.

Yesterday’s inflation figures, which saw headline CPI fall 0.3ppt to 2.6 percent y/y compared to a consensus forecast of no change, reinforced our expectation that there will be no hike in Bank Rate this year. While the decline partly reflected lower energy prices and regular month-to-month volatility, pipeline pressures associated with last year’s sterling depreciation appear to have receded, and so – while further shifts in sterling and the oil price will have some bearing – May’s figure of 2.9 percent y/y might well represent the high watermark for the year.

Certainly, a softer outlook for UK inflation should help to relax somewhat the MPC’s trade-off between maintaining support for economic activity and returning inflation back to the target.

Meanwhile, the FTSE 100 traded 0.19 percent higher at 7,404.25 by 10:10 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained highly bearish at -128.95 (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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