Inflation: the dog still isn't barking



A look at the day ahead from Julien Ponthus

Perhaps one of the most intriguing feature of economics in recent years is the inability to both forecast and prop up inflation. The good old days of the Phillips curve predicting a stable relationship between employment, economic growth and prices seem long gone.

Still, data showing U.S. inflation stayed flat in January came as a bit of a surprise, given the sheer amounts of stimulus being thrown at the economy.

While President Joe Biden is aiming for a $1.9 trillion spending package, the Fed, as its chief Jerome Powell repeated last night, won't consider slowing the printing presses until the 2% inflation figure is reached -- and exceeded.

So no bark from the dog so far. But watch U.S. weekly jobless claims due later on Thursday.

The data and Powell's comments reversed an eight-day long Treasury selloff streak, with 10-year yields sliding to 1.135%, well off Monday's 1.2% levels. The dollar too is down for the fourth straight day.

So far though, investors don't seem to be having second thoughts about doubling down on the reflation trade, which lifted global equity markets to new record highs in Asia. And more than 80% of U.S. companies have so far beaten forecasts for Q4 earnings.

In Europe too, bank shares are near 11-month highs. Despite huge Q4 losses, the pandemic impact seems to have been tempered by investment banking operations. Germany's Commerzbank CBKG.DE reported net losses of $3.3 billion while Credit Agricole posted a 92.6% profit drop

Key developments that should provide more direction to markets on Thursday: -U.S. initial jobless, 30yr bond auction -New York Fed President John Williams speaks -Central bank meetings in Peru, Serbia, Philippines and Mexico -UK Rics housing survey -European results - AstraZeneca forecast 2021 revenue growth and beat analysts' sales estimates; Spirits group Pernod Ricard expects sales to return to organic growth in 2020/21; Zurich Insurance ZURN.S reported a 20% fall in 2020 operating profit on Thursday -U.S. results with Pepsico PEP.PO , Kraft Heinz KHC.O , Kellog K.N , Walt Disney DIS.N



German 30-yr yield Link



Reporting by Julien Ponthus

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.