Here comes CPI WednesdayBy Arnaud Masset
It feels like NFP Friday but it is actually CPI Wednesday. That is to say, non-farm payroll data released on Friday, 2 February, showed surprising wage growth: this triggered last week’s equity sell-off and sent volatility through the roof. Will today’s release of America’s January Consumer Price Index do the same? Will it show rising inflation, and trigger another stock market swoon?
Headline CPI is expected to rise 1.9% annually, after its 2.1% climb in December. Core CPI should increase 1.7%, after a December hike of 1.8%. An upside surprise might happen, because of a surge in energy prices. Also, the persistent weakness in the greenback could give an extra boost to US prices. On a trade-weighted-basis, the dollar fell more than 3% in January, following a decrease of 1.2% in November and 1.1% in December.
Confusing yenBy Peter Rosenstreich
Japan's 4Q 2017 real GDP rose less than expected, but still the economy has now marked two years of growth. JPY continues to appreciate, but its behaviour is confusing. The historic relationship of USD/JPY and yields has decoupled. In recent periods of volatility, FX traders favoured havens like JPY and CHF, as well as the EUR. Yet volume has decreased significantly. Japan’s government has confirmed confidence in the Bank of Japan’s Governor Haruhiko Kuroda, bolstering expectations he will be reappointed for an uncommon, second term. This suggests a continued dovish policy. Meanwhile, the USD/JPY crossed its ‘line-in-the-sand’ of 107.30 without a fight.
Will the UK hike rates?By Vincent-Frédéric Mivelaz
Brexit negotiations will be the main factor in price stability for the coming year. A weaker GBP would harm purchasing power, but a sudden rate hike would expose consumer credits and real-estate loan to higher payments. January’s UK Consumer Price Index was 3.0% ahead annually, suggesting the Bank of England will tighten as soon as May.
Largest contributors were: Housing & Household Services (+0.52%), Transportation (+0.43%) and Recreation & Culture (+0.41%). GBP/USD’s decrease since Brexit (-3.60% since June 2016) also contributed. Despite this, the BoE is maintaining its inflation forecast of 2.40% for 2018.