Vlieghe’s Hawkish Comments Sends Sterling To Pre Brexit Levels

Friday, 15th September: Bored of being out the headlines for a while, North Korea resurfaced by launching a missile test over Japan, its furthest reaching yet. It passed over Japan’s most northern island, travelling 3,700km, landing in the Pacific Ocean, reaching a far enough range to hit the US territory of Guam. It follows yesterday’s threats that North Korea would “sink Japan” and turn the US into “aches and darkness”, following the agreement on new UN sanctions this week. Sentiment in Asia was relatively calm following the missile launch with the Nikkei in Japan closing higher (+0.51%) as well as the Hang Seng in Hong Kong closing +0.11%. The yen is weaker against the US dollar and pound at the time of writing.

Retail sales in the US fell 0.2% in August on the prior month, much against forecasts of a 0.2% rise. A drop in “auto sales” (cars as we know them) was reported, with Hurricane Harvey getting some of the blame. Sales over the summer were revised with sales in July revised down from a 0.6% rise to 0.3%.

Pub chain JD Wetherspoon today reported a 4.1% rise in total sales in the year to 30 July. Like-for-like sales, stripping out new pub openings and closures, rose 4%, and are up a further 6.1% since the start of August. However, Tim Martin, the Chairman of JD Wetherspoon warned that despite the positive start to the year, sales growth was unlikely to continue as comparisons become tougher and sales return to more normal levels following the summer holidays. Shares surged following the announcement, closing +13.89%, although the rise didn’t help the FTSE 250, ending -0.75% for its 4th consecutive day of losses.

The FTSE 100 was impacted by the pound’s return to strength;  the pound climbed to its highest level against the dollar since before Brexit as BoE policy make Gertjan Vlieghe, who has previously been a dovish policy voter, turned hawkish, fuelling speculation that UK rates could soon rise, saying “the appropiate time for a rise in the bank rate might be as early as in the coming months”. Markets have priced in two rate rises in 2018 and the yield on two-year UK gilts rose to 0.49, the highest since June 23, 2016 (the day before Brexit). 10-year gilt yields rose to 1.34%, the highest since February 6th. There is an almost 75% chance of a rate rise in November. The FTSE 100 eventually closed -1.1% as the UK also reflected on this morning’s terror attack on the London tube.

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