Inflation holds for now
UK consumer prices rose 0.4% in March, slightly above forecasts, while the annual inflation rate remained at 2.3% which was in line with market expectations. Prices were tempered, in part, by a seasonal drop in air fares and fuel prices. This was due to the timing of the Easter break and data for April is likely to reflect an increase in pricing.
Inflation remains above the Government’s target of 2% but according to the Bank of England (BoE), it’s under control. Some analysts are predicting 4% inflation by year end, but Governor Carney estimates a peak at 2.7%. There is no Monetary Policy Committee (MPC) meeting in April. The next is on 11th May which coincides with the release of the Quarterly inflation report. There will have been a further release of inflation data by then too, so the hawks like MPC member Kristin Forbes, will have every opportunity to use data to back their votes for a rate hike.
US National Federation for Independent Business (NFIB) small-business confidence declined to 104.7 for March from 105.3 previously, but confidence levels remain well above the levels seen pre-Trump, which should underpin capital spending. The Job Openings and Labour Turnover Survey (JOLTS) job-openings data was stronger than expected at 5.74mn for February from 5.63mn the previous month, which continues to indicate a robust labour market, although the number of hires did decline slightly.
San Francisco Fed President Williams stated that 3-4 rate increases would be appropriate for 2017 as a whole and that policy normalisation should continue next year, although there was no significant impact on yields. The Dollar overall was unable to gain any traction with some concerns surrounding the US current account deficit.
German Centre for European Economic Research (ZEW) consumer data was released, posted at 19.5, up from a previous number of 12.8 and beating the forecast of 13.2. This was the strongest reading since August 2015, yet the overall market impact was very limited. There was also little reaction to a weaker than expected reading for industrial production while European Central Bank (ECB) rhetoric remained generally dovish surrounding inflation and interest rates.
Data to Watch:
7:00am GER EUR Wholesale Price Index (MoM) (Mar), WPI (YoY) (Mar). 9:00am GBP BOE’s Governor Carney Speech. 9:30am Claimant Count Rate (Mar), ILO Unemployment Rate (3M) (Feb). 7:00pm USD Monthly Budget Statement (Mar). n/a EUR GER 10-y Bond Auction.