The US inflation release for January was stronger than expected. The headline number rose by +0.5% on the month (consensus +0.3%) and the more important ‘core’ (i.e. ex-food and energy) figure by +0.3% (consensus +0.2%). A breakdown by category shows that the strength of the core figures was partly due to the relative strength of clothing (apparel) prices which jumped by 1.7% on the month, but increases in the costs of shelter and medical care were also firm. Market concerns over price pressures, evident after the recent jobs data, have returned. Bonds sold off immediately after the announcement, with the yield on 10-year Treasuries having risen 11.5bp since the release to 2.931%, though the S&P 500 finished 1.3% higher after having initially witnessed some downturn following the release. The USD has also lost ground to the EUR, to the tune of 2 cents - currently trading around 1.2500. However, overall the USD index weakened again falling a further -0.65%. GBPUSD is trading above 1.4000 once again.

Turning to Brexit headlines, Foreign Secretary Boris Johnson seemed to support the status quo during the Brexit transition period by noting “things will remain as they are”. However, he did make a case for a clean break with the EU – leaving the single market and customs union and pursuing flexibility for the UK to choose which EU rules it wants to keep post Brexit. Elsewhere, he noted “Theresa” was the right PM for the UK to lead Brexit talks while also indicating “let’s not go there” in terms of a potential second referendum on Brexit. On the other side, the EC’s Juncker responded by noting that some figures in British politics “are against the truth, pretending that I’m a stupid, stubborn federalist…that I’m in favour of the EU superstate”, but “I’m strictly against (a superstate)….we aren’t the United States of America, we are the EU…”.

Overnight the South African President Jacob Zuma resigned after his ANC party took extraordinary steps of declaring it would support a motion of no-confidence brought by the opposition against him that was scheduled for Thursday, a day after party officials on Tuesday decided to issue a "recall" notice to Zuma after failing privately to convince him that he should step aside. The resignation was somewhat anticipated and as a result limited the impact on the South African Rand, which rose 2.1%.

The day ahead

Looking at the day ahead, there is very little to report on in terms of key headlines. Over in the US we have the usual weekly initial and continuing claims at 1:30pm, followed by the Industrial and Manufacturing Production at 2:15pm. Away from data we are expecting to hear from ECB’s Mersch, Praet and Lautenschlaeger. 

Thought of the day

After nine years in power, Jacob Zuma has finally succumbed to his party’s pressure to resign and ended his scandal-hit time in office. Even though the ANC had demanded he step down earlier in the week, Zuma had held on before eventually announcing his departure in a televised address last night. The 75 year old has been a member of the ANC for most of his life, rising through the ranks to become leader of the country for more than a third of the time after apartheid. He was a prominent member of the anti-apartheid struggle and was imprisoned alongside Nelson Mandela in the 1960s. The Rand continued its recent positive streak further strengthening, although moderately, to its highest level against the dollar since Feb 2015. There is plenty more news to watch out for from South Africa including a potential cabinet reshuffle from expected new President Ramaphosa and a Moody’s rating announcement in March. For a view from our trading desk on what to look out for, give your Investec Dealer a call on 0800 055 6339.