Macroeconomics: The Day Ahead for 14 February

A relatively busy day is in prospect, as markets continue to digest another upside surprise in the US via way of yesterday’s CPI, which saw an unexpectedly robust Housing reading (+0.6% m/m) pressuring Services prices (0.7%), though recreation (0.5%) and airfares (1.4%) also played a part, along with Food (0.4%) in headline terms, and this despite a big drag from Energy (-0.9%) and Used Cars (-3.4%); most worryingly Services CPI ex Housing & Energy jumped 0.8% m/m. Given the reaction in both Treasuries and equities, it would appear that market sentiment is facing a more pronounced reality check about rate cut prospects; ironically if this were to undermine confidence as it has in China, then some of the financial stability risks that have been largely dismissed could start to crystallize.

Today the focus turns to the just published UK inflation and Norwegian GDP, with Eurozone (first revision), Dutch and CEE GDP readings ahead, along with annual revisions to US PPI. In event terms, there is Indonesia’s Presidential election, a raft of central bank speakers and a busy day for corporate earnings worldwide, with highlights including Mahindra & Mahindra, Sony Group in Asia; ABN AMRO, Ahold Delhaize, Coca Cola HBC, Heineken, Norsk Hydro, Schindler and Thyssenkrupp in Europe, and in North America: Cisco, Kraft Heinz, Occidental Petroleum and Barrick Gold. There are govt bond auctions in the UK, Germany, Greece and Portugal.

** U.K. – January CPI and PPI **

In contrast to the US, CPI undershot forecasts at -0.6% m/m 4.0% y/y (vs. forecast -0.3%/-4.1%), with Clothing & Footwear (-0.24 ppt), Household Goods (-0.20), Transport (-0.38) and Restaurants & Hotels (-0.13), exercising the main downward pressure, and little upward pressure outside of Utilities (0.23). While welcome news for the BoE, Services prices still rose a smaller than expected, but still very high 6.5% y/y, with Core CPI edging down to 5.1%. As such both metrics remain sticky, and given the higher than expected Average Weekly Earnings, this is unlikely to prompt the BoE to change its rate rhetoric.