Thursday, September 12 09:03:01
The ISEQ is steady this morning at 4,257, up 4 points on yesterday's closing levels as markets settle down and await new developments.
Davy Stockbrokers expects Irish inflation to drop to or close to zero this month:
Stock indices rose on Wednesday: the Euro Stoxx 50 gained 0.4pc and the S and P500 0.3pc. Sentiment towards risk assets was helped by the diminishing likelihood of military action against Syria.
New Bank of England Governor Mark Carney appears before the Treasury Select Committee (TSC) today. Since launching his new 'forward guidance' policy in August, sterling has strengthened markedly against both the US dollar and euro, and UK 10-year gilt yields have risen above 3pc.
This tightening of monetary conditions is exactly what forward guidance was intended to guard against. Indeed, markets are now pricing in rate rises for H2 2014, well ahead of the Bank of England's prediction that no tightening of policy will occur until 2016.
Yesterday's UK labour market data showed employment up by a robust 80,000 in the three months to July. Furthermore, the unemployment rate fell to 7.7pc in July, and the timelier claimant count measure declined to 4.2pc in August. Nonetheless, the new Governor is likely to insist today that unemployment is only likely to fall slowly to the 7pc threshold. Specifically, labour productivity gains during the recovery will help firms raise their output so that they increase their employment levels only slowly.
Irish CPI inflation for August will be released this morning. The CPI inflation rate has fallen back sharply through 2013 to just 0.7pc in July, down from 2pc in late 2012. Another fall in the CPI inflation rate is likely today given that the index rose by 0.6pc on the month in August 2012. This sharp rise will now fall out of the annual comparison. So the CPI inflation rate could fall towards zero in August.
A low CPI inflation rate often reflects a weak domestic economy. However, falling Irish CPI inflation has primarily reflected lower energy prices and mortgage interest costs -both beneficial for Irish consumers and reflecting external factors. Similarly, weak import prices have helped consumers' purchasing power. CPI inflation excluding energy and mortgage interest was 1.1pc in July, close to its average rate over the past two years.
Services price inflation was 2.3pc (ex-mortgage interest), consistent with recent positive wage growth figures. So although Ireland's CPI inflation rate remains weak and could fall close to zero in August, it is still consistent with a gradually reflating domestic economy according to Davy Stockbrokers.