Market themes of the Day: The UK and the US inflation in focus to guide central banks policy

What you need to know before markets open
Main themes: 

  • The ECB Governing Council member and the Bundesbank President Jen Weidmann said in a speech in Pretoria that central banks should interpret their mandates narrowly.
  • The UK Prime Minister May said to its Cabinet members that she seeks a “legally” binding changes to the Irish border backstop that will probably require little more time.
  • The Bank of England Governor Mark Carney warned of risks from China and de-globalization are having a significant impact on the global economy with Brexit possible opening a new form of international cooperation and cross-border commerce.
  • The Federal Reserve Chairman Jerrome Powell said he does not feel the probability of recession is at all elevated.
  • The RBNZ held the OCR at 1.75% as expected and employed a marginally more dovish tone than in the November MPS. It restored the comment that the next OCR move “could be up or down” and emphasized both upside and downside risks. The NZ Dollar jumped up 1.5% against the greenback in reaction.
  • The Bank of Japan Governor Haruhiko Kuroda said the Bank is closely examining monetary stimulus policy so as not to cause side-effects including monitoring possibility that declining population and number of firms could weigh on regional banks' future earnings.
  • The UK headline inflation is expected to decelerate to 2.0% y/y in January. For more details read my UK inflation Preview here
  • The US core inflation is expected to decelerate to 2.1% y/y in January with the headline inflation at 1.6% y/y. For more details read Joseph Trevisani’s Preview here.

New Zealand

  • The RBNZ held the OCR at 1.75% as expected and employed a marginally more dovish tone than in the November MPS. It restored the comment that the next OCR move “could be up or down” and emphasized both upside and downside risks.

Europe

  • The ECB Governing Council member and the Bundesbank President Jen Weidmann said in a speech in Pretoria that central banks should interpret their mandates narrowly.
  • The Eurozone industrial production is expected to fall -0.4% over the month and -3.2% over the year in December.

UK 

  • The Bank of England Governor Mark Carney warned of risks from China and de-globalization are having a significant impact on the global economy with Brexit possible opening a new form of international cooperation and cross-border commerce.
  • With oil prices dropping the UK headline inflation is expected to decelerate to 2.0% y/y in January. For more details read my UK inflation Preview here

US

  • The Federal Reserve Chairman Jerrome Powell said he does not feel the probability of recession is at all elevated.
  • The Federal Reserve Bank of Kansas City President and the FOMC voting member Esther George said her support for pausing interest rate hikes was to let Fed assess the impact of past hikes.
  • The US core inflation is expected to decelerate to 2.1% y/y in January with the headline inflation at 1.6% y/y. For more details read Joseph Trevisani’s Preview here.
  • Atlanta Federal Reserve President Raphael Bostic and Cleveland Fed President Loretta Mester are both scheduled to speak on Wednesday. 
     

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