A weak start across Europe as investors dial back on shares after UK wage data disappointed and eyes turn to the US inflation print later on.
This morning the FTSE 100 is down around 0.15 per cent with it being quiet on the earnings front. Elsewhere in Europe, the Dax is down 0.6 per cent and the Cac 0.25 per cent with things expected to be risk-off as traders await US inflation news, and any hint on when the Federal Reserve might cut its rates. It was a non-event yesterday in New York and is expected to be similar when markets open later today while Asian markets remain closed for the Lunar New Year.
And the obsession with central banks and inflation doesn’t stop there. UK wage growth came in at 5.8 per cent for the three months to December, down from 6.7 per cent the month before but ahead of expectations, with economists hoping for something around the 5.6 per cent mark. This causes a slight headache for the Bank of England and any optimistic rate-cut watchers. The probability of the first cut coming in June has already fallen this morning, and there’s a lot more riding on tomorrow’s inflation news.
Tomorrow’s CPI reading could be a difficult one for the BoE, with economists expecting either no change up to a rise to 4.2 per cent. Pantheon’s Samuel Tombs falls in between and says the services component of inflation will spike and quirks around airline ticket pricing won’t be as pronounced as they usually are. However, he remains upbeat and says even with the rise, CPI should drop to 3.4 per cent this month. This he says could still mean a cut in May but that seems rather optimistic.
Yesterday BoE governor Andrew Bailey spoke to quash any worries over the UK falling into a technical recession when the quarterly GDP figures come out. He says the Bank is already seeing an upturn and any recession will be shallow and short.
Across the pond, the inflation report later is expected to be below 3 per cent for the first time since 2021, but whether this is enough for the Fed to pencil in some cuts is yet to be seen. There’s solid disinflation going on in the US, but the central bank might want something more broad-based. If you work off shallow data, the risk of an inflationary spike is huge once rates are cut, and markets will move swiftly in the opposite direction. As it stands, the March meeting is a nailed-on hold but a cut in May is 50-50. Those who expect the Bank of England to cut it in May would be wise to follow that, it’s very unlikely the BoE will move as quickly as the Fed.
Elsewhere, bitcoin is back above $50,000 also for the first time since 2021. It seems the SEC’s approval of the ETF has helped even with its caveat emptor supporting statement. The new ETFs have already pulled in $3bn.
The Trader is written by Taha Lokhandwala
