BoE Projects 1.3% CPI In 2 Years; US CPI, IndusProd Is Next

Periphery yields continue to rise; UK labor market data mixed; BOE projects inflation to drop to 1.3% in 2 years; Eurozone CPI remains elevated. Market turns to CPI, TIC flows, capacity utilization and industrial production. Both EURUSD Premium trades hit all targets, pattern seen repeating as range remains intact.

EURUSD was declining throughout the Asian session and reached a 1.3430 low right before London traders got to their desks. Profit taking sent EURUSD 130+ points higher but the common currency was not able to hold onto the gains and quickly gave them up. EURUSD is trading around 1.3470. Major European equity indices are losing between 0.5% and 1%.

The closely watched Italian 10 year yield reached 7.13% today but has since declined to current 6.85 with German-Italian 10 year spread around 5%. A reason for concern comes from soaring Spanish 10 year yield that reached 6.34% today which is above the high seen in August. At the beginning of October, Spanish 10 year yielded only 4.98%.

In the UK, the labor market data was mixed. The unemployment rate ticked up in September to 8.3% from 8.1% but the claimant count decreased in October to 5.3K from previous 13.4K. The claimant rate held steady at 5%.

The long awaited quarterly inflation report predicts CPI to fall to 1.3% in two years and GDP growth to reach 3.1% in the same timeframe. However, the BOE notes unusually uncertain outlook and high sensitivity to developments in the Eurozone.

BOE governor King in his speech reiterated that the forecasts are based on the assumption that there is no change in QE which could imply further QE is possible as the projection is below BOE's 2% inflation target.

Eurozone annual consumer inflation remained elevated at 3% in October mainly due to persistently high energy costs. Core CPI was unchanged at 1.6%.

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The NY session will start at 8:30 am with October CPI that is seen lower at 3.7% from 3.9% on annual basis while core CPI should increase to 2.1% from 2.0%.

Long term TIC flows due at 9:00 am should show an increase to USD 63.4 bln in September from USD 57.9 bln in August and Capacity utilization and industrial production both due at 9:15 am are seen slightly higher at 77.6% and 0.4% respectively.

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