The first estimate for HICP inflation in France

Market movers today

• In the US we expect headline retail sales to have slowed markedly in December to just 0.1% m/m from a solid 0.7% m/m mainly on the back of a substantial decline in auto sales. Excluding autos retail sales are expected to have gained a solid 0.5% m/m. The weak auto sales will probably be partly attributed to the bad weather that also appears to have weighed substantially on employment growth in December.

• The Fed hawks will be out this evening with both Charles Plosser (voter, hawkish) and Richard Fisher (voter, hawkish) scheduled to speak about the US economy. Both will be voting members of FOMC in 2014 and could push the Fed in a more hawkish direction. Both were probably among the FOMC members who argued for a faster termination of Fed’s bond purchase programme. Bundesbank vice-president and nominee for the ECB board, Sabine Lautenschläger, is scheduled to speak about the European Banking Union at 19:00 CET in Berlin.

• Otherwise in the data calendar: industrial production for the euro area, the first estimate for HICP inflation in France and consumer prices in the UK.

• In Sweden the December consumer price figures are due for release. We expect both CPI and CPIF to have remained unchanged in December.

Selected market news

In a speech last night, US Atlanta Fed President Dennis Lockhart (neutral, non-voter) said that he backs reduction of the bond buying programme. According to Bloomberg, Lockhart also said that weak payroll growth last month should not discourage policy makers from reducing monthly bond purchases as long as the economy recovery continues. “I don’t think we should overreact, and I am not changing my view of the outlook or the wisdom of the decision we made in December”, he said. The drop in unemployment to 6.7% in December, which is not far from the threshold of 6.5% in the Fed’s forward guidance “reinforces the need to add some qualitative interpretation to the threshold or to find a different way to communicate”, he said and acknowledged that “It presents some challenges in communication” for the central bank.

Japan’s current account deficit overshot expectations and rose to a record high of JPY592.8bn in November. Besides an increased demand for energy following the nuclear shutdown and a weaker JPY, which drives up energy costs, some pickup in domestic demand ahead of the sales tax hike in April probably also has a temporary negative effect on the balance. However, there are other factors, such as demography, which suggest that there is a risk that Japan could turn into a deficit nation in the coming years. The numbers clearly underline the importance of Prime Minister Shinzo restoring the balance in public spending, as Japan would need funding from abroad to finance its budget deficits if it gets stuck with a current account deficit. However, while this represents a long-term upside risk to Japanese bond yields, it would be just another argument for a weaker yen.