Chinese CPI disappoints markets, lowest reading in 5 years

Market movers today

• US small business sentiment (NFIB) has risen considerably over the past three months and consensus is that the index will increase further in January. Small service companies are an important part of the US labour market and the solid increase in service sector employment in January does suggest a further increase in NFIB optimism.

• Fed’s Lacker will speak today. Following the rotation of voting rights in January Lacker is now a voting member of the FOMC. While he is known to be a hawk, he nevertheless voted for the January statement and his comments could be interesting.

• We will also get industrial production data from the UK, Italy and France.

• The International Energy Agency is scheduled to release February’s Oil Market Report at 10:00 CET with revised forecasts for oil supply and demand.

• Monetary policy in Denmark and Danmarks Nationalbank will likely be in the spotlight again as downward pressure on EUR/DKK prevails. Danish and Norwegian inflation figures are also due. For more on Scandi markets see page 2.

Selected market news

China’s CPI increased 0.8% y/y, disappointing both our own and the consensus expectation of a rise of 1% y/y. It marks the lowest reading in more than five years. Falling commodity prices, in particular a collapse in the oil price, is the main factor weighing on inflation. The low figure further means that inflationary pressure is not a constraint on monetary easing. People’s Bank of China cut the reserve requirement ratio last week in a move to support domestic demand.

Greek finance minister Yanis Varoufakis will ask for EUR10bn in short-term financing at an EcoFin meeting in Brussels tomorrow as it is working on a solution for its current debt woes.

The EU agreed on Monday to delay new sanctions against Russia to allow for leaders of Ukraine, Russia, Germany and France to find a peaceful solution to the conflict between Ukraine and Russia in a meeting scheduled for tomorrow. US President Barack Obama hinted though, that supplying defensive weapons to Ukraine was a viable option if diplomatic efforts prove unsuccessful.

OPEC’s Monthly Oil Market Report published yesterday revealed that OPEC kept its production more or less unchanged from December to January, meaning that Saudi Arabia in particular continues to produce at a high level of 9.7mb/d. Furthermore, OPEC cut 430kb/d of its 2015 outlook for non-OPEC supply primarily on the back of downward revisions to US and Canadian production indicating that OPEC is confident that the lower oil price has resulted in consolidation on the supply side outside OPEC.