Inflation hits 2-year low
Headline UK inflation contracted by 0.8% in January as energy prices dropped and the year-on-year inflation rate declined to 1.8%, just below forecasts and the first sub-2% reading in two years. The core rate (excluding energy) was unchanged at 1.9% and producer prices also showed little change. The Pound had drifted lower in advance of the data, limiting the reaction, but as futures markets indicated a reduced chance of a 2019 rate hike the Pound drifted lower still.
Politics remained a key driver and Sterling gained some support from reports Labour would support the Cooper Amendment (Article 50 delay) to block a no-deal exit. The Pound spiked higher on rumours of a formal move to extend Article 50 but quickly fell away. Better oil prices and solid risk appetite failed to prevent the Euro from recovering to the 1.1400 area and a dip to lows below 1.2850 against the Dollar. Overnight, the headline RICS housing survey printed the weakest reading since July 2012 and Sterling is little changed this morning.
US consumer prices were unchanged for January, slightly below consensus forecasts while the year-on-year rate declined to 1.6% from 1.9%, although this was marginally above consensus expectations. Underlying prices increased 0.2% for the month with the annual rate unchanged at 2.2% compared with forecasts of 2.1%.
The Dollar gained some ground following the data given with expectations that underlying prices were still increasing at a steady pace, curbing the potential for a very dovish Federal Reserve (Fed) stance over the next few months. Atlanta Fed President Bostic stated that his baseline assessment was for one rate increase in 2019 with no rush to push rates to a neutral level.
German yields were unchanged, but narrowing spreads provided downward pressure on the single currency. Eurozone industrial production fell for December by 0.9%. This is a year-on-year fall of 4.2% which hampered the Euro quite significantly.
A new problem for the Euro was expectations that a general election was going to be called in Spain. The minority government failed to get their budget through in yet another blow to the already struggling Euro.
Data today is fairly varied. French unemployment has decreased slightly, and later we have the Bank of England’s (BoE) Vlieghe speaking. EU GDP figures will be closely watched but the big news this morning was that German GDP for Q4 came in at 0.0% meaning that Germany avoided a technical recession.
Data to watch:
03:12 CNY Exports (YoY) CNY (Jan)
03:25 CNY Imports (YoY) CNY (Jan)
07:00 EUR Gross Domestic Product (YoY) (Q4) (Germany)
07:00 EUR Gross Domestic Product (QoQ) (Q4) (Germany)
07:00 EUR Gross Domestic Product w.d.a (YoY) (Q4) (Germany)
09:30 GBP BoE’s Vlieghe speech
10:00 EUR Gross Domestic Product s.a. (YoY) (Q4)
10:00 EUR Gross Domestic Product s.a. (QoQ) (Q4)
13:30 USD Retail Sales ex Autos (MoM) (Dec)
13:30 USD Retail Sales control group (Dec)
13:30 USD Retail Sales (MoM) (Dec)
13:30 USD Producer Price Index ex Food & Energy (YoY) (Jan)
13:30 USD Continuing Jobless Claims (Feb 1)
13:30 USD Initial Jobless Claims (Feb 8)
20:30 AUD RBA’s Kent Speech
21:30 NZD Business NZ PMI (Jan)
23:50 JPY Foreign investment in Japan stocks (Feb 8)