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UK wages grew 2.3% in July, FTSE
Risk appetite remained limited in Asia. Nikkei (-0.69%) and Topix (-0.62%) traded lower, although the yen weakened the most against the US dollar out of the G10 currencies.

Price volatility is back and the visibility is limited heading into the Federal Reserve’s (Fed) September meeting. The rising volatility is a sign of stress in the markets; the risky assets and equities are expected to suffer the downside pressure.

The US dollar is swinging up and down as the slightest information, data point or comment regarding the Fed’s policy is being priced in with a decent leverage, although there is no significant change in September expectations.

The possibility of a September rate hike in the US is low and the Fed’s accompanying statement will be in focus, as it should hint at the feasibility of an interest rate hike in December.

US equity futures are under a decent selling pressure. The S&P500 futures traded 1.38% lower in Asia, as the Dow and Nasdaq futures remained flat.

European stocks and the FTSE opened slightly higher.

The weakness in the pound and the stabilisation in oil prices should allow a short-term consolidation across the FTSE heading into the Bank of England (BoE) meeting due on Thursday. Nevertheless, the bias remains negative below 6755p.

From a macro perspective, the broad picture in the UK remains little changed after the Brexit vote. This is not surprising given that the real economic impact of the Brexit will be gradual. The rapid recovery in business sentiment however is expected to keep the BoE doves sideways for the moment.

The unemployment rate in the UK remained stable at 4.9% in July, while wages grew 2.3% year-on-year, better than the 2.1% expected, although lower than last month's 2.4% progress. The improvement in wages suggests that consumer inflation should pick-up at an acceptable pace in the coming months.

As a conclusion, although UK inflation remained resilient after the BoE cut the bank rate by 25 basis points following the Brexit vote, and despite the disappointment that the BoE stimulus didn’t bear its fruits as quickly as expected, the expectations of another BoE rate action at Thursday’s MPC meeting is close to zero (3.3%). The BoE will start buying corporate bonds on September 27th and will likely stay in observation mode before taking another step in terms of monetary support.
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