BoE minutes may show more disagreement on rates that voting suggests

Good morning everyone!

• Profit taking seen ahead of the BoE and Fed minutes;

• BoE minutes may show more disagreement on rates that voting suggests;

• Geopolitical risk just background noise at the minute, but this may change.

We appear to be seeing a little bit of profit taking ahead of the European open on Wednesday, as indices point to a slightly lower open following what has been quite a bright start to the week.

Despite seeing another strong session in the US on Tuesday, Asian markets struggled for direction overnight in a sign that a little caution is creeping in as we approach the release of the minutes from the recent Bank of England and Federal Reserve meetings. It's getting more and more difficult to predict what these central banks are going to do by assessing the data alone, so these minutes could provide crucial insight into the timing of the first rate hike from both central banks.

With the votes on rates widely expected to be unanimously against a hike, the key thing in both cases will be whether there are any dissenting voices among the policy makers and if so, how many. This is the first step to voting in favour of a rate hike so the more dissenting voices there are, the earlier it would suggest the first rate hike will come.

The BoE minutes are likely to be the more hawkish of the two as it is expected to be the first to announce a 25 basis point rise in interest rates, although probably not until the first quarter of next year. Yesterday's CPI reading for July supports this view, with inflation currently standing well below target at 1.6%, allowing the BoE time to address the issue of slack and poor wage growth before considering the first rate hike.

BoE Governor Mark Carney has repeatedly sent mixed messages to the markets in recent months which may be a sign that policy makers are not as much in agreement as the voting may suggest. This should come up in the minutes and make for some interesting reading as investors try to determine exactly what this all means for the first rate hike. While another unanimous vote on rates is expected, should we see a vote in favour of a rise in interest rates, I'd expect to see some significant moves in UK markets, with the pound spiking higher following its recent period of weakness, and UK bonds getting hit quite hard. The FTSE may be less affected due to the global nature of the UK index.

The rest of the economic calendar is looking a little thin today, with eurozone construction output the only notable release. This leaves the two central bank minutes as the key events today. That said, we should never ignore the geopolitical events that continue to pose a risk to the markets. The end of the ceasefire between Israel and Gaza yesterday didn't really have much of a negative impact on markets but that doesn't mean further escalation here, or in Ukraine or Iraq, won't going forward.

European indices are pointing to a softer open this morning, with the FTSE expected lower by 12 points, the CAC lower by 6 points and the DAX lower by 11 points.