In the UK, CPI inflation for December is released , which we estimate fell back to 2.9%, from 3.1% in November, due mainly to a lower contribution from food prices. We estimate core inflation fell from 2.7% to 2.6% due to a decrease in service price inflation. Despite the higher oil prices, we expect overall inflation pressure in the UK to fade this year, as food prices seem to have peaked and GBP has stabilised in recent months. Underlying inflation pressure is still muted, as wage growth remains subdued.
Later in the day we also get the US Empire Manufacturing PMI for January . Consensus is for a small increase, although severe winter weather in the region might have impaired economic activity to some degree at the start of 2018.
No scheduled Scandi events for today.
Selected market news
Despite (more) hawkish ECB comments Monday afternoon, it has been a relatively quiet session overnight with focus across markets remaining on the continued dollar rout/euro rebound. In equities, it has been an overall positive session in Asia with most indices seeing small gains and notably the Hang Seng hitting new record highs (US was out yesterday for Martin Luther King Day). Yen appreciation abated somewhat with USD/JPY rising close to 111 again this morning as focus on the risk of Bank of Japan policy possibly becoming less accommodative faded somewhat. Also, oil prices edged higher yet again with Brent crude hovering around the USD70/bbl mark after Iraq called for continued OPEC production curbs over the weekend
Hawkish comments from the ECB's Hansson yesterday in a German newspaper interview added fuel to the fire under already-aggressive ECB pricing (a first hike priced in for early 2019) and sent EUR/USD close to 1.23. While a perceived hawk, Hansson notably said that QE purchases could be taken to zero in one go, suggesting new purchases could end as early as Q4 this year, provided the economy is on track. He added that policy guidance should be adjusted ahead of the summer and, further, that recent euro appreciation provides little threat to the eurozone inflation outlook. This line of reasoning adds to the tone of December ECB minutes and paints the picture of a central bank, where 6 at least some 6 members look increasingly keen to get going on policy 'normalisation'. A few ECB speakers coming up later this week but otherwise market focus will turn to Mario Draghi's stance at next week's ECB meeting. While we look for a softening tone at the January meeting, it is noteworthy that only hawks have been speaking publicly since the aggressive market reaction following the minutes last week.
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