UK: Potential deflation for the first time in 55 years

Fundamental View

After a break from the markets on Monday I returned to the same charts, geographically speaking, which I left on Friday. Attempting to take it easy and gradually return to the market I traded relatively conservatively and avoid large committal positions. Mid-morning we received the news of the tragic loss of life of the German Wings Airbus A320; other than a brief blip in the DAX index we saw little reaction from a risk perspective as the crash was not attributed to any foul play. Yesterday saw a day of surprising reactions in the market to data releases. A big focus for the day was UK headline CPI posting a reading of 0%, below the market consensus. However, many had in fact priced in a negative number and so, on the release of a flat-positive we saw sterling surprisingly refuse to hold at the lows, instead ranging from its pivot to the high of the 20th be the first deflationary number for 55 years in the UK. In the afternoon period the US CPI number drew most interest from market participants. We saw the monthly headline print at 0.2% with the annual rate flat on the year. The core numbers also beat the estimated 1.0% build with a gain of 1.57% for the monthly reading and allowed the annual figure to meet analysts’ estimates. New Home Sales were much higher than expectations with a reading of 7.8% against the 3.5% estimate, allowing for a lift in US equities into the afternoon.

Today’s Outlook

This morning we had the German IFO post majority in-line figures with a marginal beat on the headline. Ahead we see plenty of US data in the form of MBA Mortgage applications, Durable Goods Orders and the Department of Energy Crude Oil Inventories being released. Having scoured the newswires for any large order information coming through large cap durables such as Caterpillar and Boeing, there has been little to suggest that there has been any unusually large expenditure or pending orders for these goods. Thus we are expecting a relatively in-line/lower number. On the speaker front Fed’s Evans is due to speak on economic and monetary policy; as a natural Dove expect loose commentary from this event but traders are reminded to remain discerning when analysing such commentary. Looking closer at the DOE inventories scheduled this afternoon we saw API figures post an overnight build of 4800k barrels, in line with today’s headline figure. It is therefore likely that today’s number will remain fairly similar.