Week ahead: Markets hang on US inflation data

Here are the week’s key events:

US inflation data is the big event of the week with both the consumer and producer price inflation indices due up. Both measures were higher than expected in January and could further show that the easy bit of the disinflation process has come to an end, making it harder for the Federal Reserve to rush into cutting rates. Meanwhile we look to US retail sales figures for more detail on the state of consumers.

Remember the US switches to Daylight Savings Time, which is some three weeks before Europe follows suit, affecting your usual market opening hours in many cases.

Monday:

The week gets underway with some Chinese inflation data to kick us off. China’s CPI and PPI inflation reports are due Saturday and will inform the start of the Asian session along with some final Japanese GDP figures. China has been in outright deflation for some time with consumer prices falling at their fastest pace in 15 years; CPI declined 0.8% year-on-year, the fourth straight monthly decline. Meanwhile the focus on Japan is really on what the economic signals tell us about what the Bank of Japan will do next – the current thinking is that it will end negative rates in April, but this could be harder should the economic outlook deteriorate further.

Tuesday:

US consumer prices rose by more than expected in January, helping to push out expectations for when the Fed may start to cut rates. There is a sense that the easy bit of grinding down inflation is over and what remains is stickier. Inflation in the US slid to 3.1% on a yearly basis in January from 3.4% in December, though this was above the market expectation of 2.9%. Core CPI rose at 3.9%, unchanged from December and above the 3.7% forecast. Elsewhere keep your eyes on UK employment data and a 10yr Treasury auction in the US.

Wednesday:

UK growth figures are in focus. GDP growth has been lacklustre in Britain of late and the previous week’s Budget highlighted the long-term forces dragging on the economy. Short-term, better growth figures may help sterling by pushing back expectations for when the Bank of England will commence its rate cutting cycle. European industrial production and US weekly crude oil inventories are among the other data releases of note.

Thursday:

US inflation again in focus; though this time it’s the producer price index. PPI was, like the CPI, stronger than expected in January, hitting a five-month high with the costs of services such as hospital outpatient care and portfolio management among the drivers. PPI rose 0.3% in January and was up 0.9% year-on-year. Meanwhile, February retail sales data is due up as well. January’s retail report was weaker than expected, declining 0.8% on the month. As ever check the weekly US unemployment claims report.

Friday:

The week rounds out with some French CPI inflation data, the UK consumer inflation expectations survey and a slew of US economic releases. Of note is the Empire State manufacturing index, US industrial production and capacity utilisation figures and the University of Michigan consumer sentiment and inflation expectations surveys. The Fed and markets will watch the inflation survey with interest – last time year-ahead inflation inched up from 2.9 in January to 3.0% in February. Last week we noted that the NY Fed's measure of inflation persistence - the multivariate core trend - rose to 3% in January from an upwardly revised 2.6% in December, the highest in nine months.

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