The January CPI figures are due for release this afternoon at GMT 13:30 pm. What should we anticipate? Read on as Arnaud Masset, an analyst at Swissquote has shared his thought on the 14 February US CPI Report Expectations.
14 February, Swissquote – The last jobs report is still in everybody’s mind as it had some unexpected consequences. Indeed, the upside surprise in wage growth triggered last week equity sell-off and send equity volatility through the roof. The January CPI figures, which are due for release this afternoon at GMT 13:30 pm, will be highly scrutinized as a better-than-expected read could potentially trigger another equity sell-off.
14 February US CPI Report Expectations
The headline CPI is expected to rise 1.9%y/y following an increase of 2.1% in December. Market participants anticipate the core CPI to increase 1.7%y/y for January following a rise of 1.8% in the previous. It would not be surprising to see a stronger reading in headline CPI, thanks to a surge in energy prices. Regarding the core measure, it is unlikely that the cost of rental accommodation and healthcare accelerate further in January.
Finally, the persistent weakness in the greenback could give an extra boost to US prices. On a trade-weighted-basis, the dollar fell more 3% just in January, following a decrease of 1.2% in November and 1.1% in December.
During the Asian session, the US dollar stayed on the back foot, as investors don’t know where to stand ahead of the release. We think that the risk is significantly skewed to the upside as investors remain mostly short USD.
Japan’s 4Q 2017 real GDP rose 0.1% Q/Q and annual 0.5% Q/Q, below expectation for annualized 1.0% increase. However, the Japanese economy has now experienced two years of growth. In a marginal shift, Private consumption rose 0.5% Q/Q suggesting household are becoming more confident in the economic outlook. JPY continues to appreciate bit overall behavior is confusing. The historical relationship between USDJPY and yields has totally decoupled. During the recent period of volatility, FX traders favored haven currencies like the JPY and CHF, as well as the EUR.
Yet vol hast decreased significantly, as US interest expectations shown by 10-year breakeven has fallen. Japanese government leaders confirmed their confidence in BoJ Governor Kuroda, bolstering expectations that he will be reappointed for an uncommon second term.
Kuroda dovish pedigree indicated at talk of an early exit is unwarranted. Clearly, from today data growth has returned but hardly strong enough to demand investor’s attention (especial considering JPY inverse relationship between strength and export growth). USDJPY 107.30 “line-in-the-sand” failed to put up much of a fight.
UK inflation in line with expectations but careful with doldrums risk
UK January Consumer Price Index Y/Y ended at 3.0%, in line with expectations and confirming the view of the Bank of England to tighten monetary policy sooner than expected (probably in May 2018), largest contributors to this increase (CPIH Y/Y data) being Housing & Household Services (+0.52%), Transportation (+0.43%) and Recreation & Culture (+0.41%).
Recent data are bad news for UK consumers, as wage growth remains weak, valued at 2.20 as of September 2017 in nominal value according to the Office for National Statistics and currently estimated at 2.50%. GBP/USD decrease since Brexit referendum (-3.60% since June 2016; +2.94% Year to date) also contributed to inflation increase, outbidding costs of imported goods and services. Despite this inflationary scenario, the BoE remains optimistic and maintains its prevision of an inflation rate at 2.40% for 2018, expecting an inflation slowdown for 2018 due to recent commodity prices pullback (Bloomberg Commodity Index down by 4.47% since the end of January).
No clear reactions were noticed following the announcement. The FTSE 100 and FTSE 250 closed at 7’168 (-0.16%) and 19’320 (-0.31%) points while GBP/USD and GBP/EUR pairs were maintained at 1.3894 and 1.1246.
We expect Brexit negotiations to be the main factor as to determine whether the BoE will be able to maintain price stability for the coming year, as a weaker GBP would cause further harm to UK purchasing power (UK consumer spending gives first signs of weakness according to a recent payment processing company published data on UK payment processing). In any case, a sudden rate hike would cause further harm by exposing households holding consumer credits or real-estate loan to higher interest rates, coupled with strong inflation.
This article 14 February US CPI Report Expectations was written by Arnaud Masset, Peter Rosenstreich and Vincent Mivelaz, Market analysts at Swissquote. While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein.
This document does not constitute a recommendation to sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or in any other kind of investments.