The most important release is the UK CPI inflation

Market movers today

• The calendar is thin again today and overall focus remains on market sentiment . US stocks closed higher for the second consecutive day yesterday.

• The most important release is the UK CPI inflation. We estimate CPI inflation fell from 3.0% in December to 2.9% in January, driven mainly by a smaller contribution from the energy component , as a big monthly increase in January 2017 falls out , and food. We estimate CPI core inflation rose from 2.5% to 2.6%. CPI inflation remains one of the key release after Bank of England turned more hawkish at last week’s meeting,

• Despite being a tier-2 release, look out for the US NFIB small business optimism for January. Business optimism is very high at the moment indicating increasing growth in business investments.

• IEA will publish its monthly oil market report today. Following the recent rise in the US oil rig count , oil market fundamentals have come back into focus and the market will watch out for revisions in particular to US output forecast .

Selected market news

Asian stocks are advancing for the second day, after the S&P 500 jumped by 1.4% yesterday and volatility ret reated, with VIX falling below 26. EUR/USD and 10-year US Treasuries are little changed this morning, while oil crept higher. The rand slipped after South African President Zuma defied calls by his party to resign.

In the US, the White House yesterday unveiled its federal budget proposal for the fiscal year 2019, including a proposal of USD1,500bn spending on infrast ructure (USD200bn of which being Federal funds). Democrats needed to enact any legislation have already dismissed the proposal due to lack of significant federal spending, while many Republican fiscal hawks are wary of any big spending bill. The proposal would see the deficit almost double from projections last year despite cuts to domestic programmes and foresees the budget in deficit until the fiscal year 2039. Overall, the proposal would only worsen the already unsustainable debt path and we remain sceptical that any such legislation will actually pass Congress.

On the foreign policy front , Washington signalled readiness for direct talks with Pyongyang after reaching a deal with South Korea on a diplomatic approach to North Korea. However, despite possible negotiations, the Trump administration intends to maintain the pressure on the North Korean regime with more sanctions still to come, according to US Vice-President Mike Pence.

Danish inflation surprised on the downside yesterday falling from 1.6% y/y in September to 0.7% in January. A mix of longer lasting and more volatile factors caused the fall, but overall this has caused us to revise down our inflation out look to 0.9% in 2018 and 1.4% in 2019 – an out look that was already at the low end versus other forecasts. See more in Flash Comment Denmark: January surprise paves way for another year of muted inflation - we revise down our forecast, 2 February.

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