Sterling up ahead of CPI inflation data
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January 19th: Highlights
- UK CPI inflation date
- Euro holds steady as German inflation eases QE concerns
- EUR German ZEW Economic Sentiment
- Yen eases after Chinese growth data
Sterling Comment
Today Sterling opens a little higher, ahead of the UK CPI inflation data. With forecasts showing a minimal 0.2% inflation expectation, Sterling will be exposed to further downside risk if data disappoints, as this would pour cold water on those still speculating for an earlier rate hike.
Uncertainty surrounding the “Brexit” vote, later this year, is likely to add to the negative sentiment for Sterling. Unless the economic data start to improve, the looming EU vote will begin to represent a growing risk horizon for Sterling.
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Global Comment
Chinese GDP data was in line with expectations at 6.8% for Q4 and 6.9% for the year. This provided a degree of comfort to the market, but there is always the fear that Chinese data is not quite true. Industrial Production was +5.9% (Vs. +6.0% exp) and Retail Sales was +11.1% (Vs. 11.3% exp), which were met with a degree of caution as it all adds to the Chinese slow-down.
The markets show an improvement in risk sentiment with safe haven flows unwinding as the euro and yen have fallen. Typically, the commodity currencies have also benefitted too, but this was all in the absence of the US market, so today may paint a different picture.
The World Economic Forum takes place in Davos this week. The annual get-together for central bankers, politicians and business leaders from over 90 countries, the state of the world’s economy will be heavily scrutinised. This always presents a good opportunity for the markets to pick up on numerous comments made by many different Central Bank officials and politicians over a short period of time.
In Germany, inflation data met forecasts this morning and the ZEW survey is expected to follow suit and post a positive number, but that is not enough to reverse current expectation for the ECB to remain cautious over the outlook for economic recovery when they meet again next week.
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