UK inflation fails to increase likelihood of near term interest rate rise

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Yesterday's UK May consumer price inflation (CPI) was in line with expectations and matched the October 2008 level at 4.5%. The Retail Price Index (RPI) was also in line with expectations at 5.2%. The news did little to alter interest rate expectations in the financial markets although the stagnating level of inflation may have reduced the prospect of near term interest rate rises.

According to the Royal Institute of Chartered Surveyors the house price balance fell to -28 in May from -21 in April, which is the lowest level since January when it fell to -31. There was further poor news for the UK housing market as house prices posted an annual decline of 0.3% in the 12 months to April, the first decline since October 2009 and following +0.9% in March.

The big news yesterday was from the Eurozone as negotiations between EU finance ministers, aimed at reaching agreement on what to do about Greece, were inconclusive.

Engineering a solution for Greece is an almost impossible task. On one side is Germany and Holland, who want the private sector holders of Greek government bonds to chop them in for new ones maturing seven years later. On the other side is France and her allies, who fear that any private-sector involvement would heighten the risk of "contagion" hitting Spain, and maybe Italy. There was agreement in Brussels that Greece needs another €100 billion, but not about where it should come from or how the deal should be structured.

There was no backlash however against the Euro as it remained firm against the US Dollar and edged marginally lower against Sterling. As there was no Eurozone data yesterday, one could conclude that investors were largely unmoved by the lack of developments in Brussels. Sterling remained steady following the inflation data across the board apart from against the Canadian and Australian Dollar when it is a cent lower this morning.

In the US, retail sales fell by -0.2%, a better outcome than the expected -0.3% but it wasn't enough to boost the US Dollar.

Overnight there was a first quarter rise in New Zealand retail sales of 0.7%, bang on target, and a fall of Australian consumer confidence, further eroded to -2.6%. Neither figure had any lasting impact though.

The day is packed with economic data releases with UK employment data, Nationwide's May consumer confidence index, US CPI, US mortgage approvals and US TICS data which details the amount of investment into the US the highlights.