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  • richard evans

It's all about inflation. And GDP. And retail sales. And central bank speakers

Good morning

 

We had a relatively quiet end to the week, the US dollar was just very slightly weaker heading into the weekend and this morning we saw early signs of the potential for further USD weakness as GBPUSD and EURUSD traded up to 1.2655 and 1.0805 respectively although these moves were fairly short-lived and we are back around 1.2635 and 1.0790, GBPEUR therefore 1.1710.  USDJPY is off last weeks highs, now 149.05 compared to the 149.60 area we hit Friday.

 

Its all about inflation at the moment.  Friday’s US CPI revisions didn’t have any market impact despite being widely brought to focus by Feds Powell.  We have the main even tomorrow, US inflation numbers, and then the UK equivalent on Wednesday.  From the US, the headline is expected to show a small drop from 3.9% to 3.8%, with the core reading perhaps dipping as low as 3% from 3.4%. 

 

These would be great numbers in terms of the Fed’s battle against inflation but with so many Fed officials voicing their support for the ‘no rush to cut rates, perhaps later in the year’ theme, I’d be a little surprised if we see a huge market reaction.  The risk though are two-way.  If the data is softer than expected, it will encourage the market to look for signs of earlier easing, a weaker USD likely to follow.  Should the numbers show less softening of inflation, the USD must surely push higher as the market would tend to think the Fed are right with their ‘on hold for now, cuts later in the year’ commentary.  Just as an aside, the S&P500 did break and close above the 5,000 level last week, a record high.

 

It’ll be a different story in the UK Wednesday, where current expectations are for slightly higher inflation readings than the previous month.  While this is reasonably well priced in already, as with the US, anything away from expectation could lead to decent currency moves.  The main risk is my mind must be for potentially softer US inflation and potentially higher UK inflation, which you would imagine would lead to higher GBPUSD.

 

A different story perhaps from Europe, where ECBs Panetta made it clear he thinks the time is almost right for ECB to start cutting rates, while ECBs Centeno added that ECB will start cutting rates even before inflation is at target.  In March we have ECBs updated forecasts for inflation and growth which will be crucial for ECB decision making. 

 

So inflation is clearly the key for now, although the week has a host of other major data on offer including UK employment tomorrow morning, EU GDP Wednesday, UK GDP and US retail sales Thursday, and then UK retail sales Friday.  Real potential for a volatile week ahead.  Not a great deal of data today but a pretty full calendar of central bank speakers.

 

I see that there are proposals for bosses of water companies to lose their bonuses if their companies are guilty of sewage spills.  Regular readers will know this is something of a bugbear of mine, water companies paying hefty dividends to shareholders while not investing in their infrastructure for many years, only to then say the reason they have to leak raw sewage into rivers and seas is down to poor infrastructure.  Then the consumer face higher bills.  Shareholders are laughing.  Ofwat say they will fine companies but of course that will also end up coming out of customers pockets.  It’s absolutely despicable.

 

Meanwhile, Trump reminded us of his ability to the strangest, and some would say dangerous, comments when he seemed to invite Russia to attack NATO members who didn’t pay their way.  We know this has been an area of contention for some time, it’s not the first time he has made the point that NATO spending should be spread fairer, but the whole idea of NATO is that each member will step up to protect any other member if attacked.  Any suggestion to the contrary undermines the whole idea of NATO.  Trump is currently favourite to be the next US President, while Biden in second place is having both his mental and physical health questioned.  They really know how to pick them over there!

 

In other news, congratulations to the Kansas City Chiefs for beating San Francisco 49ers in the Supwerbowl final last night, taking the win in overtime in what sounded like a hugely entertaining and exciting finish.  England scraped a win in the six nations against Wales, France did the same against Scotland, the latter beaten only by a strange TMO decision which failed to award what looked like a match-winning try and they very end of the match.  Ireland swept aside Italy as expected.

 

In football, Ivory Coast beat Nigeria in the Afcon cup.  In the premier league, Spurs managed a last-gasp win against Brighton to put them into the top four, and they held that position as Man Utd overcame Aston Villa.  The three top teams all won, Arsenal took apart West Ham yesterday which keeps their title hopes alive and certainly helps their goal difference. 

 

We had some decent weather over the weekend, I was walking the dog and actually saw blue sky and felt the warmth of the sun on my face.  Lovely.  Not sure how long it will last but enjoy it while you can.  Enjoy the relative calm in the markets while you can as well, we could be in for a busy week…

 

-  09.45 ECBs Lane speaks

-  13.15 ECBs Lane speaks

-  14.20 Feds Bowman speaks

-  16.50 ECBs Cipollone speaks

-  17.00 Feds Barkin speaks

-  18.00 Feds Kashkari speaks

-  18.00 BoEs Bailey speaks

-  19.00 US monthly budget statement

-  23.30 AUS Westpac consumer confidence

-  02.00 RBNZ inflation expectations

-  07.00 UK unemployment

 

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