 Hello and welcome to CMC Markets on Friday the 2nd of February and this quick look at the week beginning the 5th of February and it's going to be a pretty sterling focus week this week simply because we've got the latest Bank of England rate meeting followed by the quarterly inflation report as well as a whole host of manufacturing data for December which should round off a fairly decent Q4 for the UK economy as well as services PMI on the Monday which should give us an indication as to how well the UK economy has got off to 2018 and given the recent data that we've seen it's been a bit of a mixed picture because we've seen a little bit of a slowdown in the manufacturing sector with a PMI dropping to 55.6 in January back from 56.3 in December more importantly though input prices have risen quite sharply to the highest levels in around about 10 or 11 months so that does really raise the question as to whether or not the peak inflation at the Bank of England was talking about at its November inflation report whether or not that is still the case when they update the market on Thursday we're not expecting any surprises when it comes to interest rates but certainly I think some of the recent comments by Governor Mark Carney would appear to suggest that maybe he wants to keep alive the prospect that we could see further rate rises from the Bank of England later this year in relation to the stickiness of current levels of inflation we can see that born out I think in the way that the pound has performed over the course of the past 12 months it's up 18% pretty much from this time last year it's still near the highest levels it's been post Brexit vote but it is running in to some significant resistance levels around about 144 that's where the 200 week moving average is zero dollar has broken above it's 200 week moving average and I think as a result of that what we're seeing is a little bit of a dollar rebound as well in light of a very strong wages number for January in the US economy that came in at 2.9 percent well above expectations of 2.6 and a large part of the reason for that jump was because 18 states in the US raised their minimum wage in January that's in addition to a whole host of announcements by US companies that they were giving they were going to be paying pay rises as well as bonuses to their staff over the course of the next few weeks and months and that's really given US wage growth a significant lift higher if only we could get a similar sort of uplift with UK wage growth later this month we'll certainly get some idea of that in about two to three weeks time but the inflation numbers I think are the real concern at the moment and input prices are rising have risen in the manufacturing sector and the recent CPI data that we saw for December showed that we were getting a little bit of divergence between RPI and CPI so I think it's likely that even though the pound is much stronger now than it was a year ago we could still see some latent inflationary pressure stop inflation coming down too quickly we just need to hope that wages start to push higher so services PMI for the UK economy expecting that to moderate slightly in January to around about 54.2 more broadly we've also got European services PMI's and they have been fairly strong along with the manufacturing numbers but I think there could be some evidence that maybe they could be starting to come off the boil a little bit at a time when bond yields are really pushing aggressively higher particularly in the US where the 10 year is above 2.8% and even here in the UK where the 10 year guilt is actually well above the levels it was prior to the Brexit vote it's been hit the highest level at 1.56% since May 2016 so certainly markets are starting to price in the prospect of higher rates and actually UK five year five year inflation expectations are 1% above US five year five year inflation expectations so if you look at that you could argue that UK rates are actually too low also keeping an eye on the RBA this week and the RBNZ expecting some central bank announcements from those two central banks I think the RBA will probably be probably less hawkish and probably more dovish but the reason that they may not be as dovish as they originally thought was because we've seen the Aussie dollar come off the highs on the back of a slightly stronger dollar over the course of the past few days and I think maybe we could well start to see a little bit of a dollar rebound over the course of the next few days always assuming of course that the US government avoids a government shutdown on the 8th of February the last spending bill basically rolled that particular problem forward from the end of January to the 8th of February so we could get a little bit of decision-making around that process maybe it could get then maybe it's going to get kicked further down the road over the course of the next couple of weeks companies reporting this week we've got BP's full year results how well the rise in oil prices affected those numbers we've also got Rio Tinta four year results there as well and we've got first quarter results from Disney and fourth quarter results from Tesla so fairly busy week very sterling centric that's it for this week thanks very much Michael Houston talking to you from CMC markets