Daily Financial Market Outlook

Overview & economic commentary

Swedish and Canadian CPI inflation figures head up a relatively quiet day today. There are also several scheduled central bank speakers, including Bank of England MPC member Kate Barker this evening at the North Staffordshire Chamber of Commerce. Barker is a key swing member of the MPC and her views on the economic outlook could reflect the majority on the Committee. Her speech comes ahead of tomorrow's release of the BoE February 6-7 meeting minutes, which will probably the decision to cut interest rates to 5.25% was unanimous. Other speakers today include the ECB's Noyer and Quaden, and the Fed member Gary Stern. After the European and US close today, the Bank of Japan will also publish minutes of its January 21-22 meeting, when interest rates were left unchanged at 0.5%. With growth slowing in Japan, a rise in interest rates is likely to be deferred until later this year or even next year. As noted above, some second-tier data releases are due today. Chart 1 below shows the rising profile of Swedish underlying CPI inflation, which is forecast to rise further to 2.3% in January. The Riksbank last week increased interest rates unexpectedly to 4.25%. In Canada, as chart 2 shows, falling core CPI inflation has provided room for the Bank of Canada to reduce interest rates to 4% and rates are expected to fall again at the next meeting in March.

Currency commentary

News overnight of a rise in inflation in China to 7.1% and hawkish inflation comments by the RBA has helped currencies in the Asia Pacific bloc to outperform the established G7 currencies this morning. The prospect of another 25bp rate hike in Australia gave the A$ a new boost and helped $/A$ to break above 0.9200. The strong A$ bid also pushed £/A$ below 2.1250 and could culminate in a test of 2.10 if bullish A$ momentum is sustained. $/ yuan slipped to a low of 7.1528 as speculation builds that the PBoC will later this week announce another interest rate increase to bring inflation under control. Chinese stocks took the CPI data in their stride and rose 1.6%. Figures from Barcap threw no major surprises and the announcement of a higher dividend could well support UK bank stocks today for a 2nd session. £/$ and £/€ bounced off yesterday's lows but gains could be capped ahead of the MPC minutes tomorrow. Canadian CPI data is due at midday.

Major data and events today

- Sweden consumer prices (January) (08:30)
Dec +0.2% Y-O-Y +3.5%
Median -0.4% Range -+0.2%:-0.7%
- Sweden consumer prices, core (January) (08:30)
Dec +0.1% Y-O-Y +2.0%
Median -0.5% Range -0.3%:-0.7%
- Canada consumer prices (12:00)
Dec +0.1% Y-O-Y +2.4%
Jan (f'cast) -0.1% Y-O-Y +2.3%
Median -0.1% Range -0.2%:zero
- Canada consumer prices, core (12:00)
Dec -0.3% Y-O-Y +1.5%
Jan (f'cast) +0.1% Y-O-Y +1.4%
Median +0.1% Range zero:+0.1%
- Canada wholesale sales (13:30)
Nov +0.3%
Dec (f'cast) +0.2%
Median +0.1% Range -2.5%:+0.3%
- ECB/Bank of France's Noyer speaks on real estate (10:15)
- US Fed member Stern speaks in Minnesota (14:00)
- ECB member Quaden speaks in Liege (17:00)
- Bank of England MPC member Kate Barker speaks (19:35)
- Bank of Japan publishes minutes of Jan 21-22 MPC meeting (23:50)

Chart of the day 1: Rising underlying inflation in Sweden leads to higher interest rates

Chart of the day 2: Will fall in core inflation in Canada provide room for lower inrerest rates?

GBP/USD: Sterling Should remain soft into 1.9420, but look for a rebound from the support line.
GBP/AUD: Target at 2.12 is close, risk for 2.09 over the coming weeks.

GBP/EUR: Support here at 1.3255 would not be a good level to lose. Risk for 1.30 over the next few weeks.

Lloyds TSB Bank

Posted in: Forex