Markets:
Bunds and US Treasuries traded in a sideways range in the run-up to the US CPI and retail sales data. Headline (2.1%) and core (1.8%) CPI were unchanged from December while a decline was expected. At the same time, US retail sales delivered a ‘ big miss’ for January and a downward revision for December. (Bond) markets are currently more sensitive to inflation rather than to activity data. US yields jumped higher even as risk sentiment turned negative. In volatile trade, US yields are rising up to 7bps+ with the belly of the curve underperforming (5y + 7.3 bps; 2yr +5.1 bps). German bunds outperform, with yields rising between 1 and 2 bps. 10-y intra-EMU spreads are little changed with Portugal outperforming (-4 bps) and Greece still underperforming (+10 bps).
Dollar weakness still dominated FX trading in Asia. EUR/USD trended to the high 1.23 area. USD/JPY dropped temporary below 107. Calm returned during the European morning session. The dollar rebounded off the overnight lows as investors awaited the US CPI and retail sales data. The data brought the worst possible outcome from a market point of view. Inflation printed higher than expected. Both core (1.8% Y/Y) and headline (2.1%) inflation were unchanged from December while a decline was expected. At the same time, retail sales unexpectedly declined. US yields rose and equities nosedived. The data were also mixed for the dollar, but the inflation story dominated. The dollar gained a few ticks against the yen, but the risk-off sentiment blocked any sustained gains. USD/JPY trades again in the low 107 area. EUR/USD spiked temporary below 1.23, but the jury is still out whether there is room for further USD gains. Key question now is whether today’s data mark the start of another risk-off correction and whether this will be supportive for the dollar (ex USD/JPY). EUR/JPY is also nearing the key 132/131 support area.
There were no important eco data in the UK. EUR/GBP traded with a slight upward bias near 0.89. Around noon, sterling lost slightly ground as the headlines of the ‘Road to Brexit’ speech of Boris Johnson hit the screens. Johnson’s speech didn’t bring much clarity on what the EU-UK relationship should look like after Brexit. He indicated that the UK should have the right to make its own rules and he also downplayed the benefits of being member of the single market/customs union. EUR/GBP filled offers in the 0.8920 area on the Johnson headlines, but a break of the 0.8928 intermediate resistance didn’t occur. EUR/GBP trades in the 0.89 area. Cable trades in the mid 1.38 area.
News Headlines:
The Swedish Riksbank kept its policy rate unchanged at -0.50% and said it still expected to start hiking from the second half of 2018, despite slightly downgrading 2018/2019 inflation forecasts. One policymaker broke ranks and said they should be raised immediately.
EMU Q4 GDP growth was confirmed at 0.6% Q/Q and 2.7% Y/Y. December industrial production rose more than forecast, by 0.4% M/M and 5.2% Y/Y, while November readings faced an upward revision (to 1.3% M/M & 3.7% Y/Y).
US January inflation was substantially higher than expected. Headline inflation rose 0.5% M/M and 2.1% Y/Y (0.3% M/M and 1.9% Y/Y was expected). Core inflation was also above consensus at 0.3% M/M and 1.8% Y/Y. At the same time, January retail sales unexpectedly declined 0.3% M/M. A rise of 0.2% was expected. The December figure was also downwardly revised. Core measures of the report were also well below consensus. The combination of higher inflation and disappointing retail sales triggered a spike lower in US equity futures. In volatile trade, US indices opened about 0.5% lower, but for now there are no follow-through losses.
 and headline (2.1%) inflation were unchanged from December while a decline was expected. At the same time, retail sales unexpectedly declined. ){kind=link}