Eurozone final CPI inflation for January will be among the main events in the forex markets as traders look to see whether the data supports the hawks or the doves on the European Central Bank’s governing council.
On Friday, Eurozone final CPI inflation for January will be among the main events in the forex markets as traders look to see whether the data supports the hawks or the doves on the European Central Bank’s governing council.
Flash estimates showed prices rose by 1.3% from the same month in 2017, in line with expectations but it was the slowest annual pace since July and came after price growth cooled in December. The more closely-watched core CPI rate, which strips out volatile components such as energy and food, climbed to 1% from 0.9% in December.
The data gives the ECB pause for thought: does it need to unwind stimulus as quickly as the hawks want, or is there still not the sustained uptick in underlying price pressures to warrant taking the foot off the gas? In spite of the Eurozone economy booming – growth hit a decade-high last year – the expansion in activity has yet to filter through to prices as the ECB persistently misses its 2% inflation target. The divergence between GDP growth and inflation is a headache for the ECB and makes its exit from QE more of a challenge.
With last week’s CPI beat ensuring US inflation remains the central focus for markets all eyes are on what course the Federal is plotting. Janet Yellen’s farewell meeting produced a marginally more hawkish statement than in the past, which coupled with rising inflation expectations in the US has market watchers forecasting more rate hikes than previously anticipated. Minutes from that meeting are due on Wednesday and will highlight to how members view the current economic outlook, where the risks are centred and to what extent they see inflationary pressures building.
UK Average Earnings
Following a fairly hawkish Bank of England meeting, UK interest rate expectations have advanced with markets pricing in a far greater chance of a hike in May than before. There is less slack in the economy than forecast and inflation is now expected to track lower more slowly as oil prices and domestic factors underpin price growth.
To some extent this will depend on wage growth picking up in order to support the Bank’s view that domestic inflationary pressures are building. Average earnings figures are due on Wednesday. Nevertheless, as we have seen with the pound’s retreat below $1.40 in spite of interest rate expectations rising, Brexit remains the key factor for sterling traders.
A slew of final results are due from FTSE 100 and FTSE 250 companies on Thursday and Friday.
Anglo American (AAL), BAE Systems (BA.), Barclays (BARC), British American Tobacco (BATS), Centrica (CAN), International Consolidated Airlines Group (IAG), Royal Bank of Scotland Group (RBS), Standard Life Aberdeen Plc (SLA) and William Hill (WMH) are among the big hitters to report their full-year results this week.
Source: ETX Capital