welcome to money distilled i’m john stepek every week day i look at the biggest stories in markets and economics and explain what it all means for your money coming soon if you enjoy bloomberg pursuits’ coverage of watches please join the watch club for a newsletter with exclusive news about timepieces plus access to special events and meetups poor old bank of england all it wants is for inflation data to come in below or even at market expectations for once we got the latest uk employment data this morning you can read the details here but long story short wages are rising at a record annual rate of 73 which was higher than the 71 expected the previous reading was also revised up from 72 to 73 here’s the chart we regularly print at these intervals it shows the rpix annual inflation rate the oldschool version in orange cpi inflation in white wage inflation in purple and the bank of england rate in blue a couple of points to note one is that the gap between wages and inflation is closing if we’re lucky some workers might even get a “real” terms pay increase by the end of the year at this rate the other point is one i’ve made before but note that in the pre2008 era the bank rate was consistently higher than any of those other lines if the world has reverted to something more akin to the pre2008 era i think it has but it’s certainly up for grabs then you could reasonably expect that relationship between bank rate and inflation to go back to what it was too anyway back to today’s data there are hints that the labour market might be cooling off a bit but it’s rather clutching at straws the unemployment rate rose to 4 from 38 but much of that was because people decided to return to the workforce which is something everyone has spent a long time complaining about so shouldn’t really be seen as a bad thing vacancy numbers fell for the 12th month in a row but they’re still at over a million apparently though some of that presumably must simply be job ads lingering online in a way that they wouldn’t have in the preinternet era however you look at it this does make it harder for the bank of england to push back against the market’s current belief that bank rate will go as high as 65 by early next year now i’m not convinced this will happen i think that all it will take is one downside surprise on inflation or employment data for the market to reassess potentially quite rapidly the thing is though we’re unlikely to get that sort of surprise until at least after the bank has announced its latest interest rate decision early next month and this latest data does make it more likely that the bank will raise rates again potentially by as much as half a point does this aggression make sense i mean given that no one really fully understands how monetary policy works you can make an argument for it one “transmission channel” for monetary policy is expectations if companies think the bank of england is set to raise interest rates to 65 say then chances are at least some of them will say “i’m not sure i fancy expanding into that potential headwind” we can see this happening right now in the housebuilding sector this morning we saw a profit warning from forterra plc which makes bricks among other things forterra joins a long list of housebuilder suppliers who have warned demand for new houses is wobbly so builders aren’t building as many so the providers in their supply chain are being hit moreover their forward planning is becoming more cautious too if this sort of thinking spreads then you get less business expansion less hiring gets done wage inflation cools and so on so there is a logic to talking tough but it’s far from being an exact science this is not an engine we are not using a gentle tap on the brakes or the accelerator here so we shouldn’t expect it to go smoothly what’s already in the price it’s even possible though it’s still not my central view that the bank will overtighten monetary policy to the point where we get a tipping point for the economy where growth slows enough to trigger rising unemployment that could get nasty however from the point of view of investors as i always point out what really matters is what’s already priced in and from that point of view i just need to highlight a couple of analyst notes that simply emphasise what i’ve been saying for a while uk equities are very very cheap uk stocks and corporate bonds are among the cheapest assets in the world right now according to morgan stanley analysts led by graham secker they reckon that midcap and smallcaps in particular look cheap this writeup by my colleague ksenia galouchko includes some of their top picks that said the ftse 100 is hardly expensive either according to joachim klement at liberum uk valuations are now at the sorts of lows relative to global peers that have historically proven attractive to global investors in other words uk stocks may just be too cheap to ignore what’s the catalyst the obvious one would be that inflation surprises to the downside and investors start to feel confident on where interest rates will peak i wouldn’t have much hope for that happening before we get the july inflation reading in august which doesn’t happen until after the next bank of england interest rate setting meeting and it may not be the one after either but if you’re a longterm investor i’m not sure that fretting about exactly when a catalyst may or may not arrive is the best use of your time patience is a virtue and also one of the few advantages that a private investor has over institutional managers you don’t get hired or fired based on your quarterly performance so make sure that you exploit it look for what’s cheap “overweight” it in your portfolio in other words increase your asset allocation percentage to that asset class and hold on send any feedback opinions or questions to jstepek2bloombergnet and i’ll print the best if you were forwarded this email by a friend or colleague subscribe here to get your own copy what i’ve been reading this morning   the us stock market has been on a tear but nir kaissar reckons this is quite a healthy rally compared to the exuberance of 2020 and 2021   america is building more factories but who’s going to work in them this is an interesting insight into some of the challenges of reshoring and how to overcome them   i have often wondered why it’s so hard to turn office blocks into residential flats this edition of the odd lots podcast deals with the issue in new york but it’s educational looking at wider markets the ftse 100 is a little lower at just under 7270 gold is up around 06 to 1935 an ounce and oil as measured by brent crude is now up about 05 at 78 a barrel the pound is up around 04 to 1291 to the us dollar follow uk markets today for uptotheminute news and analysis that move markets quote of the day if you haven’t yet subscribed to the merryn talks money podcast i highly recommend you do so apple folk can subscribe here fellow android users you could go with spotify or just the podcast app of your choice the main stories to watch out for on wednesday include   the bank of canada is expected to raise interest rates to 5   in corporate news pub chain jd wetherspoon and recruitment group pagegroup both update the markets on their progress we’re in a world where politics and political interventions matter far more to markets than they did in the pre2008 era of consensus globalisation and voter apathy so be sure to read my colleague allegra stratton’s daily newsletter the readout to keep up and if you want uptotheminute news commentary with the odd joke flung in follow me on twitter