Explore the world.

Assess underlying market conditions and fundamentals in the world's major economies.

World

Stay ahead.

Follow the biggest stories in markets and economics in real time.

Subscribe

Get insight into the latest trends and developments in global currency markets with breaking news updates and research reports delivered right to your inbox.

After signing up, you will receive regular newsletters from Corpay, and may unsubscribe at any time. View Corpay’s Privacy Policy

Looming Inflation Data Reinforces Market Caution

Risk appetites and trading ranges remain subdued across the financial markets this morning as investors brace for an inflation report that could show the Federal Reserve’s monetary tightening efforts are having little effect on underlying price pressures – or on overall aggregate demand.

The Federal Reserve’s preferred inflation measure will land in less than half an hour, with markets prepared to see more evidence of overheating. Economists think the headline headline personal consumption expenditures deflator rose 0.5 percent month-on-month, with the annual rate holding at 5 percent. Consumer spending is seen increasing 1.4 percent from the prior month, and personal income is expected to rise 1.2 percent.

This may be priced in: After a surprising jump in the more prosaic and less-accurate consumer price index in January, investors have anchored expectations for the personal consumption expenditure number ever-upward. If the print comes in lower than expected, yields and the dollar could come down relatively sharply.

Incoming Bank of Japan Governor Kazuo Ueda stuck to the path set out by his predecessors in his first parliamentary approval hearing, suggesting that currently-dovish policy settings remained appropriate for the country’s economy. Separately, core consumer prices—which Japan defines as all consumer items excluding fresh food—rose 4.2 percent in the year to January, marking the fastest pace since 1981. With energy prices excluded (bringing the measure into closer alignment with “core” indices in other major economies), the inflation rate was 3.2 percent. Ueda-san said “This should be the peak for now,” noting that price growth should fall back to target by September.

The euro fell after Germany’s statistics agency said the economy shrank 0.4 percent in the fourth quarter of 2022, contracting twice as fast as previously reported. Consumer consumption weakened and business investment slumped in the final three months of the year as higher energy prices continued to feed through into overall sentiment levels. The euro area economy has performed better than expected in recent months, but remains a laggard on the global stage, and long-term yields remain under pressure. An early year run at the 1.10 mark against the dollar has faded, with technical indicators pointing to further downside in the near term.

Canada’s loonie continued to grind lower, with lacklustre price action in oil markets adding to deeper concerns about the country’s exposure to higher borrowing costs. The currency has fallen more than 2 percent this month as global yields have risen – and as rate differentials have widened further in the greenback’s favour. Today’s wholesale trade and government budget balance numbers are unlikely to lift the gloom.

Today’s agenda is jam-packed with Fed speakers, including Jefferson, Mester, Bullard, Collins, and Waller. More higher-for-longer messaging can be expected, with yields vulnerable to further upside as Mester and Bullard make their usual hawkish noises.

The University of Michigan’s consumer sentiment index is expected to remain at 66.4 in February, unchanged from the early-month reading. Investors have become less likely to react to changes in consumer sentiment after a series of reports last year turned incredibly pessimistic – only to be followed by some of the strongest retail sales numbers on record. We think political polarization and an unremittingly-negative media landscape may have something to do with this failure to “walk the talk”, but we also enjoyed an observation made by Ed Yardeni, founder of Yardeni Research in a Bloomberg interview on Wednesday: “You don’t want to bet against American consumers,” he said: “when they are depressed, they spend even more money”.

RBNZ & AU CPI in focus
Optimism returns as 'Fed put' comes back into play
Risk appetite turns fragile, markets reverse some gains
Market swings continue
Shaky ground
Stale data shows US job creation picking up even as unemployment rises

Latest Analysis

Latest Analysis

Data and information on this website is provided “as is” and for informational purposes only. Information on the website does not bind Corpay in any way; nor is it not intended as advice, a recommendation or an offer or solicitation for the purchase or sale of any financial products. Data and other information are not warranted as to completeness or accuracy and are subject to change without notice. All charts or graphs are from publicly available sources, or our proprietary data. Nothing in this material should be construed as investment, financial, tax, legal, accounting, regulatory or other advice or as creating a fiduciary relationship. Corpay disclaims any responsibility or liability to the fullest extent permitted by applicable law, for any loss or damage arising from any reliance on our use of the data in any way. You should contact your Corpay sales representative for clarification on the range of financial instruments available in your jurisdiction. Copyright Cambridge Mercantile Corp. 2022.