Market movers today
In the euro area all eyes will be on the January HICP figures today. We expect headline inflation to fall temporarily to 1.1% in January due to energy price base effects but bounce back to the 1.4% level shortly after. However, we do not believe headline inflation will pick up significantly from 1.4% before 2019 despite higher expected energy price inflation. Wage growth remains subdued, so underlying inflation pressure is not strong enough to lift headline inflation towards t he ECB’s 2% target just yet . For core inflation we expect a slight acceleration in January to 1.0%, mainly due to goods price inflation, while service price inflation will likely stay muted. Note that the French and Spanish HICP figures are also released earlier in the morning.
In the US, today’s key event is t he Fed meeting. We expect no policy changes and also no major changes to the statement , as markets are already beginning to price in the three hikes t he Fed is signalling. It will be Janet Yellen’s last meeting; for our view on t he Jerome Powell Fed wee also Flash Comment US: Fed Chair Powell is ‘Yellen in disguise’ amid discussions about price level targeting, 24 January.
In Scandinavia, we get Danish unemployment figures for December.
Selected market news
The EUR fixed income market recovered slightly yesterday after the ‘ECB sources story’ on Monday stating that ECB’s QE will end with a short taper rather than a sudden stop. According to the story, even the more hawkish GC members endorse a gradual slowdown of QE after September. In addition, yesterday, ECB GC member Klas Knot (hawkish) said that QE may end with a short taper after having said over the weekend that t he QE program has to end ‘as soon as possible’.
On the euro area data front, euro area Q4 17 GDP growth came out strong yesterday at 0.6% q/q (2.7% y/y). This was slightly lower than the previous quarter (0.7% q/q), but still a solid expansion pace. This leaves annual 2017 euro area GDP growth at 2.5%, the highest since 2007 and activity indicators such as PMIs and ESI still point to a continued strong expansion pace for the next quarter. German HICP inflation came out slight ly lower than expected yesterday at 1.4% y/y in January. The lower than expected German figure supports our below consensus call for euro area headline inflation of 1.1% in January (due today).
It was a relatively mu ted market re action on Trump’s first State of the Union speech in Washington overnight with the EUR/USD increasing slightly and the 10-year US government benchmark bond yield dropping around 1bp.
Yesterday, the Irish Minister of Finance officially nominated the Irish Central Bank Governor Philip Lane to replace Vi tor Constancio as VP of the ECB. Const ancio’s term expires in May this year. Countries can nominate a candidate from each country until 7 February.
