U.S. inflation figures are released on Wednesday, if YoY inflation has fallen, then equity market investors may regain confidence

Feb 12 • Mind The Gap • 185 Views • No Comments

On Wednesday February 14th at 13:30PM GMT (U.K. time), the USA BLS department publishes its latest findings regarding CPI (inflation) in the USA. There’s a series of CPI data released at the same time, but investors and analysts will concentrate on two key measures, the month on month and year on year CPI figures. Due to the recent sell off and subsequent tentative recovery in U.S. equity markets, the inflation data will be closely watched, the ripple effect was also felt in global equity markets. The selloff was pinpointed on fears that inflationary wage pressures in the USA, currently at 4.47%, may cause the FOMC/Fed to raise interest rates more aggressively than previously anticipated in order to cool inflation in the overall economy.

The forecast is for YoY inflation to recede to 1.9% YoY for January, from the 2.1% previously recorded for December. However, the MoM reading is forecast to spike to 0.3% in January, from 0.1% in December and it’s this monthly figure which investors and analysts may focus on in more detail, as opposed to the YoY value. Investors may quickly calculate that if such a rise has occurred for a month which can often produce benign inflation figures and then extrapolate the data to forecast an annual rise of over 3% during 2018, then equity values may once again come under pressure. However, the alternative scenario is possible if the YoY forecast is met. Investors may consider that the YoY annual rise has moderated slightly, therefore the market tantrum in relation to the inflationary wage figure publication, was an overreaction.

Whatever the inflation publications reveal on Wednesday, without doubt this latest series of inflation figures will be carefully monitored due to the recent sell off and modest recovery, not only for the potential impact on equity markets, but also for the potential impact on the value of the U.S. dollar. Upon the release of the data dollar investors and FX traders will make rapid decisions regarding the dollar’s value, on the basis of how quickly the FOMC/Fed will enact the interest rate rises they committed to, during their recent December and January meetings.

KEY ECONOMIC METRICS RELEVANT TO THE CALENDAR RELEASE

• GDP YoY 2.5%.
• GDP QoQ 2.6%.
• Interest rate 1.5%.
• Inflation rate 2.1%.
• Wage growth 4.47%.
• Jobless rate 4.1%.
• Govt debt v GDP 106.1%.

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