Turning to BoE Minutes, Swiss Govt, Premium Trades

Bank of England minutes could surprise and weaken sterling, UK Unemployment and average earnings, Euro zone CPI, Merkel and Sarkozy fail to appease markets.

Yesterdays UK July CPI figures showed inflation slowing down on a month to month basis, however the rise to 4.4% would not have been well received by the doves on the Monetary Policy Committee. There had been talk in recent weeks of the committee considering further QE in the wake of recent poor economic data, a view that wasnt ruled out by Mervyn King last week. Todays minutes could well give further clues as to the committees thinking on this, but in any case it would be extremely unlikely that further easing would do anything other than push an already elevated inflation rate even higher by pushing the pound down and raising import prices.

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This month's increase in energy prices will push inflation towards the 5% level and do nothing to exert downward pressure on prices, and as such the Bank will likely trot out its usual platitudes that risks to recovery remain evenly balanced.

At the same time UK jobless claims for July are expected to increase by 20k for July, down slightly from Junes 24.6k, while the 3 month ILO measure is expected to stay at 7.7%. Average earnings are expected to stay constant at 2.3%, though if they also push higher it remains even more unlikely that further QE would be countenanced due to fears of second round effects.

In Europe inflation data on the CPI measure for July is expected to remain at 2.5%, though on the monthly measure it is expected to slip back 0.6%, suggesting that inflationary pressures are starting to diminish in Europe. Whether this will be enough to dissuade the ECB on its destructive course of raising rates is another matter, but who knows with the ECB, raising rates on the one hand, and then buying peripheral bonds with the other to drive yields down.

Yesterdays meeting between Merkel and Sarkozy while giving a roadmap to close fiscal ties between France and Germany didnt really add anything to the mix with respect to extra funding to the EFSF or the thorny subject of Euro bonds. The disappointing growth in Germany last quarter makes it much harder for Chancellor Merkel to make the case for further bailouts when the normally resilient German economy has virtually ground to a halt along with the rest of Europe.