MAN THE LIFEBOATS!
Mark Carney has spoken and made it clear that the UK are nowhere near ready for a rate rise. Originally, he had mentioned that the decision on interest rates would come into contention at the turn of the year, but with volatility in China, depreciation in oil prices and poor wage growth domestically the goal posts have been moved much further down the line as the Bank of England (BoE) and Carney now go into “wait and see mode”. Consequently, this hit Sterling hard – pushing the Pound into 1.29 territory against the Euro and 1.41 range against the Dollar.
Carney refused to put a specific timeframe on the decision, but he did note that progress would need to be witnessed in the key areas: there needs to be evidence that inflation is on course to return to the 2% target, momentum in economic growth and a firming up in domestic cost pressure.
CPI came in at 0.1% (month-on-month), while core CPI (year-on-year) could only muster a measly 0.2% uptick to 1.4%. With wage data out today, and expectations of a slowdown here too, the Pound could be in for further losses.
Eurozone inflation rose to 0.2% year-on-year for December. The rise in inflation is due to a slower decline in energy prices, which in turn, was partially offset by a smaller rise in food and service prices.
The IMF has cut its Global Growth forecast for this year by 0.2%. The reasons given were: a much sharper than expected Chinese slowdown, the strong US Dollar affecting the US economy and geopolitical tensions in a number of areas.
Later today, focus will shift to US inflation. The core (year-on-year) inflation rate is expected to hit a three-year high of 2.1%. Inflation figures are now becoming just as important for the US as they have been for the Eurozone, and with global markets struggling and China adding to the fear of a global slowdown there are growing feelings that the Fed may have moved too soon with the rate hike. Any kind of figure later today that points to the economy struggling could well add to the downside as the market wants to see the Fed steadfast in its plan to raise rates multiple times in 2016.
Data to watch: 7am German Producer Price Index Dec (month-on-month & year-on-year). 9.30am UK ILO Unemployment rate, Average Earnings (incl and excl Bonus). 1.30pm US Consumer Price Index (year-on-year) (Dec) & CPI Ex Food & Energy (year-on-year) (Dec) & CPI (month-on-month) (Dec)& CPI Core s.a (Dec) & CPI Ex Food & Energy (month-on-month) (Dec) & CPI n.s.a (month-on-month) (Dec).