March 13, 2024

“Yesterday’s hotter-than-expected US CPI print sparked some choppy market movements but did not derail the dovish trade that has a June cut dampening the dollar. The UK’s return to growth, meanwhile, will please policymakers this morning.”

Sam Cornford – Head of Trading

Main Headlines

President Joe Biden and former President Donald Trump both secured their parties’ nominations on Tuesday, setting the stage for the first US presidential election rematch in nearly 70 years. Biden surpassed the 1,968 delegates needed to win the Democratic nomination as results from the primary contest in Georgia began to trickle in yesterday evening. Shortly afterward, Trump reached the threshold of 1,215 delegates required to secure the Republican presidential nomination.

British Energy Minister Claire Coutinho emphasised the critical role of gas in supporting renewables at a conference in London yesterday, arguing that there is a genuine risk of blackouts without adequate backup. Despite efforts to expand nuclear and wind power capacity to meet climate targets and ensure energy supply, new gas plants will be required to enhance energy security, the government said.

GBP

Positive growth data has done little to jolt the pound this morning, after it inched lower yesterday on the back of softer-than-expected wage growth in January. The UK economy returned to marginal growth as expected in January, posting a 0.2% month-on-month expansion in activity driven by upticks in the retail, wholesaling, and construction sectors. The growth outlook is still subdued by weak demand and high rates, but an end to the technical recession appears to be in sight already. With the prospects of a deeper contraction dwindling, growth will not be a roadblock for the Bank of England’s patient stance that sees market expectations pricing in a likely cut only in August. The data calendar is quiet for sterling today, and traders will be looking to Friday’s consumer inflation expectations.

EUR

The euro took a slight knock from stickier-than-expected US inflation but edged further away from a near-one-month low against sterling yesterday. Industrial production figures and the ECB framework revisions are the main impulses in today’s diary, as well as speeches from the ECB’s Cipollone and Stournaras. Industrial output is expected to have slowed by 1.8% in January, in what would be the worst result since May last year.

USD

The dollar struggled to get going yesterday despite a fresh strong CPI report above the 3% level, with the dovish market mood from Powell’s remarks prevailing. CPI inflation ticked up to 3.2% from 3.1% YoY, while the core monthly measure – which strips out volatile food and energy prices – landed at 0.4%, above consensus estimates for a 0.3% print. But the details were more encouraging than the headline, given that two thirds of February’s price increases were driven by shelter and gasoline. Shelter costs are naturally worsened by restrictive monetary policy, and leading indicators have signalled a decline that is yet to show up in the hard CPI data. The slightly softer picture ultimately wiped out most of the greenback’s gains and chipped away at the implied probability for a June cut only slightly. Yet headline inflation has been virtually stagnant since July last year when it printed at 3.0%, and there is little time left for the Fed to gain enough confidence in the sustained disinflationary trajectory in the next three months. It is PCE that is targeted, though, and PPI data tomorrow should give a clearer picture on what sort of figure we will get later in the month.

Markets

Equity investors brushed off sticky US inflation figures and resumed the tech-fuelled upward march in stocks yesterday. A 7% jump in Nvidia stock and a 12% rise in Oracle’s pushed the S&P 500 back to a fresh record high as AI stocks refuse to lose their bullish momentum for long.

Main Economic Events (All Times CET)

8:00am: UK GDP m/m, Industrial Production
11:00am: Eurozone Industrial Production
3:30pm: US Crude Oil Inventories

To learn more about Ballinger Group, please visit our website or our LinkedIn page.