Inflation drew some attention last week. US August CPI data was higher than expected, breaking previous few months’ trend of downside disappointments (US inflation had missed expectations for almost 5 consecutive months). While some of the upside surprise in August was driven by hurricane impacts (higher energy and away-from-home shelter prices), price gains in other components were relatively firm. One month of strong inflation data is hardly enough to prove that inflation is picking up from here, but it could drive hope of such for some investors. Implication will be Fed expectations changing at the margins, possibly supporting less negativity for the USD and longer dated Treasury yields. This will especially be so if core PCE inflation data corroborate signs of inflation strength at the end of the month, and if the decision to start the Fed’s balance sheet reduction materialises at the FOMC meeting this week (19-20 Sep).

Aside from the US, UK surprised with a much stronger-than-expected August inflation data as well. Core inflation came in at 2.7% y/y – the highest in more than 5 years. Continuing this hawkish narrative, the Bank of England meeting last Thursday surprised with a hawkish guidance, saying a “majority of MPC members” judged that some withdrawal of monetary stimulus is appropriate in coming months “if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure.” The sterling pound spiked last week.

Over in Asia, China’s August activity indicators (Industrial production, retail sales and FAI) were below expectations, triggering some growth concerns and a sell-off in HK/China equities. This is likely noise. China’s second half 2017 growth will probably be weaker that the first, but a full scale slump in 2H17 is unlikely. With China’s 19th Party Congress coming up on 18th October, chances are the Chinese government will not let economic growth concerns stir in the background going into the leadership transition event. North Korea fired a missile over Japan for the second time in less than a fortnight last Friday, triggering yet another UN Security Council meeting on Friday, but little market reaction.