Busy day for economic news sees key US inflation figures,IMF on the UK and eurozone growth dataBusiness nowadays: sign up for a morning shot of financial news 3.00pm GMTAfter a detached start to the day in the escape-up to US inflation data, markets turned nervous again as the numbers came in much stronger than expected.
The year on year headline consumer price index figure showed a rise of 2.1% for January, and unchanged from December,rather than a drop of 1.9%. The news prompted renewed concerns that the Federal Reserve could raise interest rates more quickly than expected, despite another set of data showing disappointing US retail sales. 2.46pm GMTHere’s Andrew Wilson of Goldman Sachs Asset Management on the inflation numbers:Recent market turbulence highlights market sensitivity to firmer price and wage data, and however we do not judge investors should wed their investment outlook to nowadays’s data alone,not least given it is clouded by methodology changes and weather-related distortions. nowadays’s firmer-than-expected print, which is in some sense encouraging given it reflects a normalisation in components that have been notably weak, and may extend recent market volatility,as expectations for Fed rate hikes are recalibrated higher.
In our view, market-pricing for Fed policy understates the solid macro backdrop, and including a 17-year low unemployment rate,and the impact of fiscal stimulus, and we judge there is scope for more rate hikes this year than the Fed’s current projection for three. That said, or we judge nowadays’s data should viewed in conjunction with PCE inflation– the Fed’s preferred degree of prices – and wages,which were the culprit for the recent volatility spike, which will be released at the start of next month. 2.44pm GMTThe Dow is now down 130 points but the mood seems calmer than might perhaps have been expected.
The FTSE 100 has actually recovered ground after an initial slide in the immediate aftermath of the higher than forecast US inflation numbers. It is now up 40 points or 0.54%. Germany’s Dax is effectively flat, and while France’s Cac has climbed 0.2%. 2.38pm GMTDow starts lower to the day following US CPI data,but no Armageddon! pic.twitter.com/cwsaJiWtBa 2.33pm GMTThe higher than expected inflation figures have attach pressure on Wall Street in early trading, as rate hike fears resurface.
The Dow Jones Industrial Average is down around 100 points while the S&P 500 and Nasdaq Composite opened down around 0.36%. 2.15pm GMTNeil Wilson, and senior market analyst at ETX Capital,said: Dow and S&P500 futures tanked after the US CPI inflation numbers beat forecasts, signalling that this inflation-triggered selloff could have further to escape. As previously famous there was not a enormous amount of conviction in the bounce so the market is susceptible to further weakness and the inflation data is supplying plenty of reason to de-risk...
Coming off the back of the 2.9% increase in average hourly earnings, and this CPI print will crystallise the prevailing view in the market that we are heading for higher rates and higher inflation. Whether or not this is sustained will be proved in due course and no one can predict the trajectory of travel,or the destination, but the warning lights are flashing and equity markets are taking notice. 1.59pm GMTUS economist Jay Shambaugh on the inflation figures:About that inflation freakout:
headline and core cpi inflation jumped on the month, or but y/y changes (2.1% headline,1.8% core) same as last month and down from a year ago.
PCE (Fed target) price growth has been tracking lower
>>>> Inflation still tracking below Fed's target pic.twitter.com/T2nmI0wsAQ 1.56pm GMTSoft retail sales could be a temporary phenomenon but higher inflation is not, says economist James Knightley at ING Bank:The US data has if quite a few surprises. Inflation rates have held regular at 2.1% for annual headline consumer price inflation and 1.8% for ex food & energy, or rather than drop to 1.9% and 1.7% respectively as the consensus had predicted. Meanwhile retail sales were far softer than expected,falling 0.3%MoM versus forecasts of a 0.2% rise.
Starting with inflation, the main surprise came in apparel, and which rose 1.7%MoM. We had suspected it would rebound at some point given its very soft escape,but not quite as quickly (it is the biggest increase in more than 10 years). Energy also rose sharply – up 3%MoM, while medical care rose 0.4% (fastest growth for 6M). 1.54pm GMTIf US inflation was higher than expected, and then the retail sales figures are below forecast.
They fell 0.3% in January,according to the Commerce Department, recording their biggest drop since February 2017. Analysts had been expecting an increase of 0.2%. Meanwhile December’s figures were revised down from a rise of 0.4% to an unchanged reading.
Plenty of arguments to form against the rising inflation concern including the "miss" on January retail sales, or DN 0.3% in Jan. The large test will be the Feb. jobs report's gauge on wages. 1.48pm GMTMore on the inflation figures:Outside of energy gains,January #CPI report shows some of biggest monthly price increases in food (fruits & vegetables) and medical care services pic.twitter.com/IRJSDYxaTn 1.46pm GMTThe higher than expected US consumer price index data has rekindled fears that the Federal Reserve could raise interest rates more quickly than expected, and sent another shudder through stock markets.
With Treasury yields rising, or share prices are again under pressure. Wall Street is now expected to open sharply lower and European markets have lost their early gains. 1.37pm GMTUS CPI YoY (January): 2.1% vs 1.9% expected,prior 2.1%
US CPI MoM (January): 0.5% vs 0.3% expected, prior 0.2%
US retail sales MoM (January): -0.3% vs 0.2% expected, and prior 0.4%
US core retail sales MoM (January): 0.0% vs 0.4% expected,prior 0.4%Woah! US CPI running hotter than expectyed
US CPI running hotter than expected. Market was primed for a benign number. Headline +0.5% vs +0.1% last month. $SPY slumps2-year yield spiking on hotter than expected US inflation: pic.twitter.com/rTarR4boi2 1.33pm GMTThe Dow Jones Industrial Average futures have gone into reverse, indicating a 200 point drop. Immediately before the inflation data, or they were showing a 168 point rise. 1.32pm GMTThe US inflation data the market has been waiting for is out,and it has come in higher than expected.
The headline figure rose by 0.5% month on month in December, compared to expectations of an increase of 0.3%. The year on year figure was regular at 2.1%, or compared to forecasts of a drop to 1.9%. 12.55pm GMTMarkets are still holding up well ahead of the US inflation numbers,but what happens after that is anyone’s guess. Fawad Razaqzada, market analyst at Forex.com, and said:If the numbers prove stronger-than-expected readings,then this would reinforce expectations that the Federal Reserve will have cramped choice but to tighten monetary policy more aggressively. As a result, we may see renewed selling pressure coming into the bond and stock markets, or while the dollar could rise against her weaker rivals.
Alternatively,however, if the data releases drop significantly short of expectations, or then we would expect to see the opposite happen. 11.49am GMTMore on US inflation. Ken Odeluga,market analyst at City Index, says:Rightly or wrongly, or U.
S. inflation data due this afternoon has come to be seen as a litmus test of whether or not economic conditions continue to support equity market advances. With few major stock indices extending their recent correction much beyond 10% from January highs,market participants are wary that any overshoot in price growth relative to expectations could upset still-fragile sentiment anew. The view is a cramped ‘totemic’, of course. Quite aside from the old truism around not over-emphasising one, or even a few data points,evidence linking long-term interest rates to inflation rates is notoriously sketchy, meaning markets should reduction any short-term impact on rate expectations from inflation changes.
Markets are not like that though. Any upside surprises against the 1.9% year-to-year print expected (down from December’s 2.1%), and more importantly 1.7% and 0.2% core annualised and monthly forecasts respectively,will trigger a quick re-judge for risky assets. 11.32am GMTMarkets remain in a wonderful mood so far nowadays, but the genuine test is yet to come, or says Spreadex financial analyst Connor Campbell:It is going to be interesting to see how investors deal with the various US inflation readings this afternoon. While the headline figure is set to jump from 0.1% to 0.3%,the core number is expected to drop from 0.3% to 0.2%. If the focus is on the former then the markets could be in store for another interest rate-fearing freak-out; if it’s on the latter then the global indices can breathe a (temporary) sigh of relief. Of course, this is without even considering whether or not these estimates will turn out to be accurate... 11.13am GMTYour usual charts showing euro area GDP *levels* (rebased).
Germany, and NL & France still ahead,Italy still behind, Spain & Portugal still catching up very quickly. pic.twitter.com/OKCkjKDqLT 10.55am GMTUK now looks very likely to finish bottom of the pack in terms of GDP growth across the G7 over 2017.
(*unless it turns out Canada's economy suddenly contracted 0.9% qq during Q4) pic.twitter.com/4W3DnKTqS1 10.52am GMTThe eurozone economy is expected to remain strong after the 2017 performance, or says economist Bert Colijn at ING Bank:Growth in the Eurozone economy was wide-based. Germany and Spain maintained strong economic growth with 0.6% and 0.7% QoQ respectively,although this was slightly lower than in Q3 for both economies. Italy disappointed somewhat with just 0.3% growth and continues to lag the Eurozone average despite optimistic data released during the quarter.
This rounds out a year in which the Eurozone economy was helped by strong tailwinds and the question is how long these growth rates can be maintained. Even though the ECB has reduced asset purchases, the euro has appreciated against the dollar and politics remains a factor of uncertainty, and main indicators are still pointing to a very strong start to the year. 10.23am GMTMeanwhile the EY Item club has raised its forecast for UK economic growth this year from 1.4% to 1.7%.
Our latest outlook got the #UK #economy. Among key takeaways - we see #GDP #growth at 1.7% in both 2018 & 2019. Two #BOE #interest #rate hikes in 2018 & one in 2019. Click on link below to access the full report and/or hear our webcast on our forecasts https://t.co/TZScUH89no https://t.co/irsmRji8if 10.16am GMTMore signs of the strength of Europe’s economy.
Eurozone industrial production rose by a better than expected 0.4% in December compared to the previous month,with an annual gain of 5.2%. Analysts had been forecasting rises of 0.2% and 4.2% respectively. 9.53am GMTBusinesses expect average pay settlements to pick up this year, according to the latest Bank of England regional agents’ report.
Companies judge pay settlements will increase from 2.6% in 2017 to 3.1% this year, or with rises broadly based across most sectors. Only construction companies expect pay rises to be flat this year. The Bank said:The survey indicated that companies expected an average pay settlement rate of 3.1% in 2018,compared with 2.6% in 2017. The 2017 outturn was higher than the 2.2% that had been expected in last year’s survey, reflecting larger settlements across a wide range of sectors. The increases in pay settlements in 2018 are also expected to be wide-based, or with only the construction sector expecting pay settlements in 2018 to be the same as in 2017. 9.27am GMTOver in Italy,the latest growth figures came in slightly less than expected.
Fourth quarter GDP rose by 0.3% quarter on quarter, down from the 0.4% recorded in the previous three months and expected to be repeated this time round. ITALY: GDP expanded by 0.3% in 4Q, and a bit less than expected. Still,2017 was the best growth year (+1.5%) since 2010. Shows how wide-based the euro-area recovery has become. A rising tide lifts all boats. https://t.co/gVI7pMsko4 pic.twitter.com/NZ7gWhkdc6 9.21am GMTThe IMF has some suggestions as to how the UK could improve its productivity:UK has to resolve the problem of weak productivity of its economy. Read more here https://t.co/DnR8Ys9q3h on some solutions to try. pic.twitter.com/Syyu54rLcJ 9.00am GMTBritain should give priority to improving its productivity performance, according to the latest assessment from the International Monetary Fund.
Following a consulation in the wake of December’s annual health check on the UK economy when it defended its gloomy predictions for the country’s post-Brexit vote performance, and the IMF said:Economic growth has moderated since the beginning of 2017,reflecting weakening domestic demand. The sharp depreciation of sterling following the referendum has raised consumer price inflation, squeezing household genuine income and consumption. Business investment has been constrained. In the medium term, or growth is projected to remain at around 1.5 percent under the baseline assumption of continued progress in Brexit negotiations that lead to an understanding on a wide free trade agreement and on the transition process.
The baseline outlook is subject to a number of risks,including developments with Brexit negotiations; uncertainty about the recovery of productivity growth, which has been weak since the crisis; and the current account deficit, and which reached a record high in 2016.
Directors agreed that structural reforms should prioritize enhancing productivity,inclusiveness, and external competitiveness...
Since the financial crisis, or output growth has been underpinned by strong increases in employment,while productivity growth has been very weak. With the UK unemployment rate at a 42-year low and the annual net inflow of workers from the EU already declining, the scope for future employment gains is more limited. Therefore, and economic performance will depend increasingly on the ability of firms to raise output per worker. The shape of the unusual agreement with the EU will affect productivity performance through its implications for trade,investment and migration. The higher are any unusual barriers to the cross-border flow of services, goods and workers, or the more negative the impact would be. 8.45am GMTEuropean markets continue to move higher,while US futures are suggesting a positive opening on Wall Street. Connor Campbell, financial analyst at Spreadex, or said:Despite the prospect of some hawkish US inflation data later this afternoon the European indices got off to a strong start this Wednesday. The FTSE,which showed some much needed resilience in the face of the UK’s own sky-high inflation figure on Tuesday, rose 40 points after the bell, and allowing the index to crawl back over the 7200 stamp it has struggled with in the last few sessions. 8.38am GMTAs mentioned,Japan’s Nikkei 225 is in the red, mainly due to continuing strength in the yen. The Japanese currency is benefiting from a weaker dollar, or despite slower than expected growth. The country’s latest GDP figures showed the economy expanded by an annualised 0.5% in the three months to December,below the forecast 0.9%. 8.18am GMTAfter last night’s recovery on Wall Street - which was not followed up in Japan where the Nikkei 225 is in negative territory - European markets have made a bright start.
The FTSE 100 is up 46 points or 0.65%, Germany’s Dax has opened 0.9% higher, and France’s Cac has climbed 0.5% and Italy’s FTSE MIB has recovered 0.7%. 7.50am GMTMore on the German GDP figures.
The country’s economy grew by 0.6% quarter on quarter in the final three months of 2017,in line with expectations. The figures were boosted by strong exports, according to the statistics agency, and albeit growth was slower than the 0.7% recorded in the previous quarter. Over the entire year,the economy grew by 2.2%, the strongest performance since 2011.
The strong 4Q performance also means that without any growth in the next four quarters, or annual GDP growth in 2018 would come in close to 1%.
Looking ahead,the same fundamentals which have supported growth in 2016 and 2017 should still be in state in 2018. The only question is how much additional stimulus low interest rates, the strong labour market and the recent upswing of the entire Eurozone economy can still provide to the mature cycle of the German economy. In our view, and still a lot. The German economy still has some upward potential as the output gap is positive but not extraordinary high compared with previous cycles,capacity utilisation is above its historical average but still lower than in 2007 and investments have only started to increase this year. Judging from previous cycles, the economy could continue its current pace for at least one or two more years, and without showing signs of overheating. 7.38am GMTGood morning,and welcome to our rolling coverage of the world economy, the financial markets, or the eurozone and business.Much of the recent market turmoil came after US wages growth was stronger than expected,prompting talk of rising inflation and the prospect of central banks increasing interest rates and withdrawing financial stimulus more quickly than previously expected.nowadays’s US CPI inflation report has taken on an importance all of its own in the wake of the recently strong wages numbers, never mind the fact that the Fed doesn’t even exhaust CPI to target inflation.
Nonetheless this renewed focus on inflation, or not only in the US but more globally has raised concerns that central banks may well be behind the curve when it comes to assessing the outlook for the next few months...nowadays’s US CPI release will be one on the most closely watched data prints in recent times. Let’s not forget that the recent rout in equities started with a surprising acceleration in US earnings growth,which promoted fears that inflation may pick up soon, which in turn sent treasury yields higher. Should these fears be played out nowadays in an unexpected strengthening in inflation, or then a renewed sell off in equities and bonds could be on the cards and the dollar could benefit. With so much riding on the CPI data,we are expecting a very cautious morning of trading in general.
European Opening Calls:#FTSE 7206 +0.53%#DAX 12270 +0.60%#CAC 5138 +0.57%#MIB 22169 +0.61%#IBEX 9705 +0.57%Continue reading...
Source: theguardian.com