Daily Market Update

Although the Federal Reserve has been hawkish and spoken about sticking to its interest-rate hiking plans, the economy has not been dented as much as economists thought. The Consumer Price Index showed that prices remain on the rise for all of us, while today’s release of the Producer Price Index (PPI) revealed further inflationary pressures for suppliers.

PPI for January month-over-month came out at 0.6%vs. 0.2% when excluding food and energy costs, bringing the yearly average to 4.5% when 4.0% was the estimate. When it comes to the Housing sector, there is more of a slowdown, but figures were close to expectations, while the contraction in Housing Starts for last month came in deeply negative at (-4.5%) vs. the forecast of (-1.9%).

As far as surveys on economic mood go, we got a mixed bag with a more optimistic New York Fed Services Outlook than the Philadelphia Fed Business Outlook, which disappointed in a big way as well with a reading of (-24.3) vs. (-7.5).  We shall see how the combo of solid earnings and a stubbornly strong economy play out for equities looking to continue to thrive this year while the dollar takes a variety of views into account, moving wildly from one timely record to another. Expect central banking action to start being scrutinized as the theory is not playing out like before.

What to Watch Today…

• No major economic events are scheduled for today
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EUR ⇓

The Euro fell to its weakest point since the second week of January but seems to be one of the more resistant currencies to the dollar resurgence. While it is clear that the Fed may have no need or use for cutting interest rates in the next year or more, other central banks, such as the ECB, are also looking to cut away from the loose monetary modus operandi that has been characteristic since the financial crisis of 2008.  With European stocks also looking to climb and the upcoming end of cold weather, the economy of Europe is expected to grow and benefit the shared currency despite of these downward swings following any indicator that reinforces a view of a U.S. economy not faltering.

 

GBP ⇓

Sterling also fell to a fresh new low in six weeks following domestic indicators fueling less speculation over the Bank of England’s will and need to hike interest rates any higher. CPI dropped in a shocking way while wages went up, contradicting the typical positive correlation between the two.

With the release representing over a half percent difference from the December figure, it can be concluded that BOE’s Governor Andrew Bailey was correct in warning that deflation could arrive very soon and aggressively. If so, the BOE’s chances of rate-hiking have fallen significantly, and thus the Pound could see major headwinds as Q1 comes to its final stage.