Bond yields jump

The euro is marginally firmer against the dollar and sterling this morning trading at around $1.0580 and 86.8p respectively, while the pound is a touch firmer against the dollar at $1.2190 with UK inflation data released earlier this morning having little impact on the currency

Government bond yields rose sharply yesterday. US 10-year yields increased by almost 15bps to 4.84%, spurred on by stronger than expected economic data, while equivalent German yields increased by 10bps to 2.90%. UK yields lagged the moving higher yesterday, though they have edged up this morning to 4.57% following the inflation data.

Equity markets held in relatively well despite rising bond yields, with both US and European stocks ending flat on the day (though the latter are slightly lower at the open this morning).

The annual rate of headline inflation in the UK came in at 6.7% in September, unchanged from August but slightly ahead of forecast (6.6%), while core inflation ticked down to 6.1% from 6.2%, also slightly ahead of forecast (6.0%). Over the three months to September, headline inflation averaged 6.7%, a touch lower than the Bank of England’s forecast of 6.9% in its August Monetary Policy Report.

Retail sales in the US remained solid in September, increasing by 0.7% month-on-month after an upward revised gain of 0.8% in August, while manufacturing output rebounded last month after declining slightly in August.

China’s economy grew more strongly than expected in Q3 with GDP increasing by 1.3% quarter-on-quarter, ahead of the consensus forecast of +0.9%. On a year-on-year basis, growth eased to 4.9% in Q3 from 6.3% the previous quarter.

Economic data due today include a final CPI inflation reading for September in the Euro area and housing starts in the US.