Inflation Dominates Proceedings

Its another busy day for European and US markets today as important economic data takes centre stage ahead of the weekend. Initially the UK and Europe will look towards the UK unemployment rate and the all important Eurozone CPI reading. Yet again here we expect to see a negative number as deflation continues to be the biggest driver monetary policy. At this weeks ECB press conference Mario Draghi told us that he does not expect to see a fundamental change in the CPI print yet, however he does expect the reading to soon start to travel back towards that 2% target. Many will see the CPI as an indication as to how well the asset purchasing program is working in Europe, however the ECB want to urge patience on this as we have only had the QE program in place for just under 2 months.

CPI takes centre stage in the afternoon as well as the US reading is announced. Yet again it is a reading that has wide reaching ramifications for central banks and underlying monetary policy. The CPI print in the US is likely to show yet another fairly strong number, with expectations that we could see an improvement that puts us back into positive territory. The markets want something that is going to give us a clear indication on the US rate hike, and many traders are still trying to decide whether it will be June, September or later in 2016. Janet Yellen told us that we must wait for improving data before we see rates move higher, and a jump back into positive territory on CPI will be a big step in that direction. It’s the stability of the markets that is causing the problem and if the Fed aren’t careful we could see the data improve so much that it will become very hard not to hike rates. This could cause instability on both fronts where the disappointment of no hike is just as volatile an announcement as an actual hike itself would be. I remain in the 2016 camp and don’t see the Fed raising until at least Q1 next year.

Greek officials will meet finance ministers in the US over the weekend as the 24 April deadline looms for its debt repayments. Yesterday Christine Legarde, the head of the IMF said she would not stand by and let Greece dictate the rules on their debt repayments. This also came after Germany told Greece that they would very much struggle to find funding outside of the EU and IMF. The rumours are rife that if the Grexit were to happen then Greece could go cap in hand to Beijing and Moscow. A Russian bailout for Greece is one of the greatest fears for Europe and could well be a reality if there is no clear sign on any progress when finance minister meet over the weekend.

If Greece does default on its payments and misses next Friday’s deadline for reforms then that does not necessarily mean that it will leave the Eurozone. The EU have told Greece that they will lend to them if they can also find another creditor, however with Greece’s track record and its refusal to undertake any more plans in terms of austerity they may find it incredibly difficult to find any support.

Ahead of the open we expect to see the FTSE100 open higher by 11 points with the German Dax lower by 12.