11 Sep 2018

Market Brief: all eyes on US inflation

Sana Hanassi-Savari

FX Dealing Team

The Bloomberg Dollar Spot Index fell for a fourth day ahead of the US inflation release today, on concerns that an acceleration in inflation data will trigger a renewed rout in US equities.

Today's data releases
  Key levels
10.00 Eurozone GDP   Support Resistance
13.30 US inflation GBP/USD 1.3760 1.4067
13.30 US retail sales GBP/EUR 1.1160 1.1500
Market overview

The Bloomberg Dollar Spot Index fell for a fourth day ahead of the US inflation release today on concerns that an acceleration in inflation data will trigger a renewed rout in US equities. Stock markets have been quiet ahead of the release, however the fact that the VIX (the measure of the stock market's expectation of volatility implied by S&P 500 index options) remains at approximately 25 is an indication of last week’s shock and the potential for further volatility should we see a number that exceeds expectations.


Staying in the US, the Jerome Powell was ceremonially sworn in as the new Fed Chair yesterday. He reiterated that the Fed is still in the process of gradually normalising both interest rates and their balance sheet with a view to extending the recovery. He also noted that the financial system is incomparably stronger and safer since the crisis, with much higher capital and liquidity but the Fed will remain alert to any developing risks to financial stability should they arise. Staying on the Fed, the Wall Street Journal cited unnamed sources who suggested that the Fed’s Mester was being considered by the White House for the Vice President Chair role and had impressed the selection team, though noted that there was currently no front-runner for the job with the field of candidates reportedly also including the Fed’s Williams and Allianz’s El-Erian.


UK CPI inflation data for January, released yesterday, were generally on the firm side of market expectations. The headline measure remained steady at 3.0% (YoY), compared with consensus estimates for a nudge down to 2.9%. The ‘core’ measure (which excludes food, energy, alcoholic beverages and tobacco) rose to 2.7% from 2.5%. In the US, the January NFIB small business optimism index was above market expectations by rising 2 points to 106.9 (vs. 105.3), though remained slightly below the 34-year high of 107.5 back in November. 



The day ahead

Looking at the day ahead, the main focus will be on the US inflation report. We will also have the US January figure for retail sales released alongside this. In Europe, we’ll get the second estimate of Q4 GDP for the Euro area.




Thought of the day

Valentine’s or St Valentine’s Day is celebrated today. It is the day when people show their affection for another person or people by sending cards, flowers or chocolates with messages of love. The tradition is thought to have originated from a Roman Festival called Lupercalia. It is thought that as part of the celebrations, boys drew names of girls from a box. They’d be boyfriend and girlfriend during the festival and sometimes they’d get married. If you are cynical, unromantic and trying to keep the costs down (like me) you will side with the story that Valentine’s is an American tradition designed by card companies to make money! This afternoon we head to America to see the release of headline Inflation for January, with the latest commentary from the FED this is going to be monitored closely, will the report confirm that US interest rate rises will need to happen faster than previously expected? Or is the Dollar’s recent rebound overdone? Give your Investec dealer a call on 0800 055 6339 to discuss the potential outcomes.


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