Inflation likely to disappoint across Eurozone and UK

• UK inflation fears take GBP down 1.5%

• US retail sales should be stable through December

• French and Italian CPI numbers also due, emphasis of disinflation remains

• US stocks have the worst day since November

2014 has definitely started in strange form. Both the Japanese yen and the Australian dollar, 2 of the most maligned currencies through 2013 and looking primed for another poor 12 months, are up on the year. Gold too is higher, whilst the yields on developed world bonds are coming lower as the market doubts the veracity of the recovery. Does this means that we are seeing a complete rotation away from the recovery story?

A short answer would be no. A longer answer would be that the improvements and regressions that are expected of the world economy are set to take place over the course of the coming months. One payrolls shaped swallow doesn't make a summer. It isn't half irritating though. We would countenance patience however; especially in AUD and JPY.

JPY has enjoyed a run into strength following Friday’s US jobs disappointment but would be keen to emphasise that data disappointments around inflation, jobs and output in the US and UK so far this year are one thing but will be quite another when we talk about Japan. It is dangerous to write any set of numbers off as a ‘one-off’ but we would say that the trend of data through 2014 between the US, UK and Japan will allow JPY significant opportunity to weaken.

GBP was the worst performing currency in the G10 yesterday with very little reason for the slippage. Rumours around a disappointment in today's CPI number - and a hefty one as well - were making the rounds as was chat around traders taking a run at stop losses in heavy pairs such as GBPJPY and GBPNZD. Tying into the rumours of a disappointing inflation number there will also be an element of what has happened to UK data this year so far; every single piece has missed expectations, raising fears about the UK economy's momentum and the make-up of the recovery.

We are looking for inflation to dip to 2.0% today in CPI terms from 2.1% last month; this would be the first time that inflation has hit target in the UK since November 2009. It will be interesting to see if the RPI measure has been affected materially by the increase in the average mortgage rate seen since the Bank of England decided to cut the Funding for Lending Scheme away from mortgage related finance. Both numbers are due at 09.30 GMT.

French CPI has disappointed estimates slightly this morning by only rising 0.7% in the year to December vs an expectation of 0.8%. As we pointed out on Thursday morning, one of the 2 reasons why the European Central Bank are likely to further loosen their monetary policy is a disappointing inflation picture in the coming months. This figure may have helped things in the short term for those looking for a weaker single currency.

France will remain in focus today as President Hollande will outline his agenda for the new year. France's economy has been the negative outlier through the 2nd half of 2013 and, alongside revelations of his private life, have increased the pressure on the Hollande presidency. He is due to speak at 15.30 GMT and hopefully the questions will focus on his job and not his hobbies.

Continuing the inflation picture we have the Italian measure for December at 09.00. Prices are expected to have risen 0.6% in the past year.

The US session will be dominated by the retail sales report for the important month of December; tales from retailers on both sides of the Atlantic have told of winners and losers and the market is looking for only a slight improvement of 0.4% if auto sales are removed. A poor number combined with the lingering memory of Friday's jobs number would deal another relative bodyblow to the USD.

Have a great day.