All eyes on tomorrows US jobs report

• UK borrowing costs soar, sending GBP and FTSE 250 lower.

• Chinese inflation continues to stutter.

• All eyes on tomorrows US jobs report.

The FTSE 100 has found itself on the top of the heap in early trade today, capitalizing on the collapse of the pound as the highly international market sees the value of foreign earnings increase. However, things are not as cheery for the domestically-focused FTSE 25O index, which has now lost over 3% over the course of this week alone. With UK treasury yields soaring to send the 30-year yield up to the highest level since 1998, companies and individuals reliant on debt will be staring at a higher cost of borrowing than seen at any time over recent years. Central to this has been the growing concerns around inflation, with the initial optimism around Donald Trump’s Presidency now shifting to fear that he will push prices up domestically and subsequently towards their trade partners. However, the particular spike seen for UK yields does highlight some jitters around the UK budget, with Rachel Reeves expected to steer market sentiment by stating that they would pay for the increased borrowing costs through spending cuts rather than higher taxes. Whether Reeves will be able to settle sentiment is doubtful, and domestically-focused stocks are likely to continue suffering if the UK economy is faced with weak growth, lower government spending, and higher costs of borrowing for businesses and consumers alike.

The release of Chinese inflation data served a timely reminder over the continued weakness evident within the world’s second largest economy. With CPI coming in at a measly 0.1%, and factory price deflation (PPI) extending to a 27th consecutive month (-2.3%), we are seeing precious little sign of a resurgence in economic activity despite a raft of supportive measures introduced by the PBoC. For global goods inflation to remain low, the combination of a weaker yuan and negative factory prices does at least help ease the chance that we see prices surge. However, the prospect of a global rebound in growth appear to be flagging as US rate cut hopes fade, and the Chinese economy continues to show little signs of a major turn.

Looking ahead, today’s relatively light data docket sees tomorrow’s all-important jobs report provide the main focus. Yesterday’s FOMC minutes served to highlight the inflation fears inherent within the Fed, with members noting that Trump’s policies pose a significant risk that could yet spark a fresh surge in prices. With that in mind, markets are likely to take a ‘bad news is good news’ approach as they settle down in the wake of Tuesday’s hugely concerning spike in the prices paid element of the ISM services PMI.