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The name’s Bond. Stagnant Bond.

The name’s Bond. Stagnant Bond.

The GBP/EUR was excitable during the course of trading yesterday but ultimately opened and closed actually very close in terms of the overall position with the net result being not a lot of difference. The GBP/USD retreated in pretty confident fashion by contrast and so the see-saw motion of the pair continued for another day, bound by a cent or two up or down.

The stock and bond markets still appear to be treading water at the moment, particularly as the interest rate rise conversation from the US is not dying down at all and the situation in Greece still weighs on the minds of investors. The trifecta, if you like, of implications are the high value of stocks despite slack economic growth, low bond yields and plenty of talk about the Chinese stock market being a ‘bubble’.

The feeling is that the US Federal Reserve is keen to raise rates earlier and slower rather than later and faster. The bond market is languishing at historic lows ahead of a lift in inflation and shows signs of slowing. If the lower yields and breakeven rates continue, especially in the face of a potential interest rate rise from the US, is this the bond market’s way of suggesting the Federal Reserve is making a policy error?

Given the strength of the Pound in the last few weeks and the impacts that this has on the UK economy, there is likely to be some renewed debate over the timing of any interest rate rises. The importing companies will be rejoicing, but those that export will face lower demand as the prices offered to the global market stray higher, particularly the Eurozone. This can be interpreted as a threat to inflation and therefore pose a delay in the potential movement of the interest rate.

We have received the Nationwide housing price indicator today and this showed that prices have continued to rise, in line with forecasts. Next to be produced are the Purchasing Manager Index for construction in the UK and the Eurozone Producer Price Index as well, a figure that assesses changes in prices paid by producers which gives a potential indicator of consumer price inflation too. Lastly, we have some USD data focusing on retail sales data as an indicator.

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