Today's trading session looks like being an incredibly busy

Good Morning all!

Today’s trading session looks like being an incredibly busy and important session as economic data is due for release from around the globe. We have already seen important data overnight from Asia as the BOJ meeting minutes were released as well as Japanese GDP data. The GDP readings out of Japan was expected to be poor after the introduction of the sales tax that came into force within the last quarter. Expectations were for GDP to shrink by 7.1% YoY, however the figure came in at 6.8%. The sales tax which of course hit consumer spending with both the retail sales figure and factory output numbers over the last quarter also down on the back of the sales tax number. However due to the nature of the fall and the one expectations of the introduction of the sales tax I would expect to see a recovery in this number and for the Japanese economy to continue to recover in the next quarter. The BOJ however didn’t offer much in the way of headlines from their meeting minutes, stating that geo political tensions must be monitored. They also reiterated the thought of many that the economic recovery was still largely on track and that no change in fiscal policy was currently needed.

This morning sees the release of the BOE quarterly inflation report and Mark Carney happens to be delivering this information on the day that we also get unemployment data out of the UK. The unemployment data is of course key when it comes to the state of the economy, and the Banks decision on fiscal policy. Although forward guidance is not now focussed on the rate, many analysts believe that the 6% unemployment rate is a key area. Should we see a drop below that level it would be very hard for the MPC to fight the argument for continued low rates, especially if the average earnings number continues to move higher. Average earnings was a large part of why the governors first round of forward guidance was shelved. If wages are not rising at a similar rate to jobs being created then hitting the cost of living further with a rate hike would have severely hurt a lot of the general public in the pocket, and my sceptical head says that’s not something you want to be doing as we run up to a general election in May 2015.

What we are likely to see from the BOE today is very much the same story as before. I had been in the camp that a rate hike was just around the corner, but the scepticism over the election seems to have bitten me a little harder these days. I expect Mr Carney to reiterate his extended rates for an extended period speech, much like his US counterpart. What will be interesting will be his inflation outlook. There is no getting away from the fact that UK PLC is currently performing well and the current inflation level of 2.1% is pretty much perfect for the government and BOE. It will be the fear of rocking the boat which we see today. Inflation may be in a good position at the moment but as the Eurozone situation shows it can fall very quickly, and once its down there it’s very hard to drag higher. So there will be cautious optimism from the bank, a very British feeling eloquently conveyed by a Canadian at 10.30 this morning.

We are also looking a lot of data from Europe today the bulk of which comes out of Germany. The Germany economy has been a pig recently, struggling on all fronts. GDP, CPI, exports and imports and industrial production have all posted weak numbers. This of course could pose a huge threat to the Eurozone and gives the ECB huge problems. The overall problem for the Mario Draghi is without a strong Germany, we do not have a strong Eurozone, and the fear is that all the measures thrown at dragging the economy out of the mire could well be about to fail due to the failing of the single currency’s largest economy. CPI inflation for Germany is set to fall again today, with expectations for a fall to 0.8%. IF the CPI in Germany can fall this far then it doesn’t paint a very bright picture for when we get the overall Eurozone CPI reading tomorrow.

So it’s likely to be a busy day, especially in the UK so we can expect big volumes through Cable and the sterling pairs. Ahead of the open we expect the FTSE100 to open lower by 9 points, with the German DAX higher by 16 points.