The main event on the economic calendar looks set to be the monthly CPI release in the US, which will be assessed for its potential impact on monetary policy. Firming inflation expectations have seen bond yields climb but have yet to do much for the US dollar.
A month ago, the data for January showed CPI rose 0.5% against projections of a 0.3% increase. Annually, prices were up 2.1%, ahead of the 1.9% expected.
Another rise in inflationary pressures would likely boost the case for the Fed to raise rates more quickly in 2018, with markets increasing betting on policymakers to pull the trigger this month.
Following last week’s announcement of tariffs on steel and aluminium, combined with the resignation of Gary Cohn, market attention will be firmly on whether the trade skirmish escalates into all-out war. Has Donald Trump ignited a global trade war or will, in the face of dissent among Republicans and a firm response from the EU, make him blink?
Markets had been pretty sanguine about the tariffs – by the time Cohn resigned, US equities were still higher than they were when Trump first announced his tariffs. The prospect of a full-on trade war was talked down and regarded as a small tail risk. Many felt Cohn and others would stop Trump from launching an all-out trade war.
With Cohn – seen as a moderating influence – gone and the mercantilist genie out of the bottle, the likelihood of a full-on trade war has increased. The focus this week is the extent of any retaliation by the EU/China, and any ensuing countermeasures by the White House.
UK Spring Statement
The annual Budget event now takes place in the autumn with the Spring Statement from Britain’s chancellor taking on less significance. Nevertheless, with Brexit top of the agenda and continuing to weigh on the pound, market participants will be paying attention when Philip Hammond takes to the despatch box on Wednesday.
So what should we expect? One, there will be no tax changes and no spending increases. But there will be an updated set of UK economic forecasts, which could surprise to the upside if the recent economic data can be relied upon.
The Office for Budget Responsibility slashed economic forecasts in November as it revised estimates of productivity. But rising tax receipts and an elimination of the budget deficit – the first since July 2002 – means the OBR could be forced to revise its estimates higher. Extra wiggle room will be a welcome relief for the chancellor, who will no doubt seek to bulk up his Brexit ‘war chest’ rather than spend more.
Nothing of note in the US, but still plenty of FTSE and DAX stocks to consider. An interesting smattering of results comes on Wednesday with Balfour Beatty plc (BBY), Dignity plc (DTY), Hikma Pharmaceuticals (HIK), Morrison (Wm) Supermarkets (MRW), Prudential plc (PRU), Adidas (ADS) and E.ON (EOAN) due to report.