US inflation could hit 40 year highs today

Good morning

The day many have been waiting for, the US inflation numbers. Major currencies have been trading in a fairly narrow range for a few days and equities have had a couple of decent days, EURUSD now 1.1425, GBPUSD 1.3550, EURGBP 0.8430 (GBPEUR 1.1860). We know UK is running with high inflation and we are in a rate rise cycle, ECB have turned more hawklsh recently and it seems some ECB officials don’t agree with inflation forecasts. However I do think ECB will be more cautious when it comes to raising rates. The US on the other hand will almost certainly be raising rates next month, its just a question of 25 or 50bps. This could depend on whether annual inflation beats expectations which come in around 7.2%, or 5.9% excluding food and energy.

Another day many have been waiting for is the day when we live with no Covid, or at least no Covid restrictions. That day seems to be edging nearer, UK PM Johnson has outlinwed plans to bring forward an end to the self-isolation requirement to perhaps just a couple of weeks time. With new cases still running at 60,000 each day there are many who feel this is a step too early, the counter to that is that infections do seem less severe and with a successful vaccination program it would seem hospitalisations are now not as widespread as first feared.

A day we are hoping will not be seen is the day Russia decide to invade Ukraine. Reports suggest the Russian military build-up on the Ukraine border continues, with military exercises due to take place in Belarus over the next few days. An invasion is likely to send oil prices higher, a de-escalation should see oil prices retreat but I’m not sure we will see significant moves lower.

In other news, BoJs Kuroda was reasonably dovish saying high inflation will not be a problem for a long time and that monetary easing must continue, while this morning Swedens Riksbank have also been on the dovish side, sending EURSEK up from around 10.39 to 10.47. USDCAD now testing the Feb support levels around 1.2660 after Macklem made it clear rate rises are firmly on the agenda in order to bring inflation down. Currency markets not paying much attention to the ongoing truck drivers protests in Canada.

While the key may be US inflation numbers today, BoEs Bailey will be closely watched this evening for any clues as to the UKs rate path, while early tomorrow morning brings UK GDP and industrial production data. Until then, I appear to be getting something of an interest in curling and even a bit of snowboarding, not the one with all the tricks, but the downhill event where four riders race against each other. These two events probably couldn’t be further apart, curling is slow and sedate, snowboarding fast and frantic. Variety is the spice of life, it seems.

- 10.00 EU economic forecasts

- 12.00 ECBs de Guindos speaks

- 13.15 ECBs Lane speaks

- 13.30 US CPI, initial jobless claims

- 19.00 US monthly budget statement

- 21.05 BoEs Bailey speaks

- 21.30 NZ business PMI

- 22.30 RBAs Lowe speaks

- 02.00 RBNZ inflation expectations

- 07.00 UK GDP, industrial production

- 07.00 German CPI, HICP