Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Much of the recent market turmoil came after US wages growth was stronger than expected, prompting talk of rising inflation and the prospect of central banks increasing interest rates and withdrawing financial stimulus more quickly than previously expected.
With that in mind, today’s US consumer price index data will be closely watched to see if inflationary pressures are indeed picking up. And even though the Federal Reserve does not take much account of the CPI measure when determining interest rate policy, there is enough nervousness around that a stronger than expected figure could have repercussions for stock markets.
Michael Hewson, chief market analyst at CMC Markets UK, said:
Today’s US CPI inflation report has taken on an importance all of its own in the wake of the recently strong wages numbers, never mind the fact that the Fed doesn’t even use CPI to target inflation.
Nonetheless this renewed focus on inflation, not only in the US but more globally has raised concerns that central banks may well be behind the curve when it comes to assessing the outlook for the next few months…
Much importance is being attached to today’s US January CPI report, however it is unlikely to tell us too much more than what we already know about inflationary pressure in the US economy. Various ISM prices paid surveys are telling us that prices are rising at their highest levels since 2011, yet thus far we haven’t seen much evidence of it in the headline numbers.
Even now indications are for CPI to slip back to 1.9% from 2.1%, while retail sales for January are expected to show a rise of 0.2%, a modest slowdown from the 0.4% rise seen in December.
Jasper Lawler at London Capital Group said:
Today’s US CPI release will be one on the most closely watched data prints in recent times. Let’s not forget that the recent rout in equities started with a surprising acceleration in US earnings growth, which promoted fears that inflation may pick up soon, which in turn sent treasury yields higher. Should these fears be played out today in an unexpected strengthening in inflation, then a renewed sell off in equities and bonds could be on the cards and the dollar could benefit. With so much riding on the CPI data, we are expecting a very cautious morning of trading in general.
Markets have been reasonably calm so far this week, with Wall Street recovering from early losses yesterday to end higher for the third day. Europe is expected to open higher when trading begins shortly.
Here are IG’s opening calls:
Apart from the US data, we also have German GPD figures, which are in line with expectations, as well as eurozone growth data. Meanwhile the International Monetary Fund is due to release its latest assessment of the UK shortly.
9am GMT: IMF Article IV updated assessment of UK
1.30pm GMT: US consumer price index and retail sales