US PPI in view, with jump in import prices highlighting risk of a secondary inflation push

European markets are in the green once again this morning with the German DAX hitting another fresh record high in early trade. The UK remains a key focus as retail sales data provides yet another consideration for traders that continue to process yesterday's slump into a technical recession. The release of inflation data out of the US earlier in the week provided an uphill battle for those hoping to see the S&P 500 clock in a sixth consecutive weekly gain. However, we are once again seeing investors buy the dip, with US indices looking primed for a positive end to the week.

UK retail sales staged a dramatic bounceback in January, posting the largest monthly rise in trade since April 2021. Coming off the back of a concerning -3.3% December slump, this helps build a story that might justify yesterday’s -0.3% Q4 GDP reading. Instead, it seems to be a case that we are seeing a shift in UK consumption, bolstering claims that Q1 will bring a welcome rebound in economic growth. The surge in both the value and volume of transactions served to highlight a relatively strong picture for demand, although this will have taken some of the pressure off the Bank of England after a week that saw lower-than expected inflation and growth.

Looking ahead, US PPI inflation brings a final hurdle for markets, as we weigh up the potential for further dollar strength should producer prices start to pick up once again. Much like wages, producer prices provide a key gauge of underlying inflation pressures being felt by US businesses, with traders looking out for any signs of increased costs as Red Sea disruptions impact the cost of shipping globally. Coming off the back of yesterday’s concerning surge in import prices that posted the biggest monthly jump in almost two-years, any additional signs of resurgent inflation pressures could lead to a renewed push higher for the US dollar.