There was renewed caution during the Asia-Pacific trading session after the recent rally in stock markets as investors await Thursday’s key US CPI inflation data. The Nikkei is higher as it plays catch-up after reopening from a public holiday in Japan. Comments from US Fed officials added to the more cautious mood. Both the Fed’s Daly and Bostic said that they expect policy rates to continue to increase. In the UK, Bank of England Chief Economist Pill yesterday noted signs that the labour market is starting to turn but he also said that inflation could prove to be more persistent. His speech suggests that policy rates will be raised again in February.
With a relatively quiet calendar today, there will be some attention on the participation of several prominent officials at the Swedish Riksbank’s international symposium on central bank independence. It will be interesting to see whether there will be fresh insights on prospects for near-term monetary policy with the Fed, ECB and Bank of England all expected to raise interest rates again at their next meetings in early February. BoE Governor Bailey today will moderate a panel which includes Bank of Japan Governor Kuroda, Bank of Canada Governor Macklem and ECB Executive Board member Schnabel. Later, Fed Chair Powell is also scheduled to take part in a panel discussion.
There are no major UK data releases ahead today. Overnight, the British Retail Consortium (BRC) reported a decent 6.5% rise in like-for-like sales in December compared with a year earlier, driven by stronger food sales. These figures, however, are not adjusted for and are partly flattered by higher inflation. The Office for National Statistics will release official December figures next week.
Earlier this morning also saw the release of French industrial production data for November. They showed a rise of 2.0%m/m after the 2.5% fall in October Yesterday’s German figures also showed a rebound after an October decline. The outturn for the Eurozone will be released on Friday. Overall, the sector is continuing to be affected by weak demand, but there are hopes that prospects are starting to improve.
The only notable US release today is the December NFIB small business optimism index which appears to have broadly stabilised in recent months albeit remaining at weak levels. Markets are looking for a small decline in the headline index to 91.5 from 91.9 in November. As mentioned above, this week’s market attention, however, will be on Thursday’s US CPI report for further signs that both headline and core inflation is moderating.
Currencies remain in relatively tight ranges for now, with the US dollar paring some of its recent declines. The pound touched $1.22 but has since edged back down. US 10-year Treasury yields are broadly steady at recent lows.
