Happy Leap Day to all who celebrate. With the Federal Reserve’s preferred measure of consumer price growth – and therefore the world’s most important inflation yardstick – set for release in less than half an hour, global markets are holding their collective breath. Core personal consumption expenditures inflation is thought to have doubled to 0.4 percent from a month earlier in January, with the gain flagged in advance by stronger-than-forecast increases in consumer and producer price indices. Ten-year Treasury yields are sitting near 4.31 percent, up a little over 4 basis points, equity futures are seeing incremental losses ahead of the North American open, and oil prices are broadly lower. 

Yen traders are taking a leap of faith after a key Bank of Japan official sent the clearest indication yet of an imminent exit from the institution’s long-standing negative interest rate policy. Board Member Hajime Takata said “There are uncertainties for Japan’s economy but my view is that the price target is finally coming into sight,” with the country now “at a juncture for a shift in the entrenched belief that wages and inflation won’t rise”. Although Takata avoided discussing the timing of a move, markets are now generally positioned for a decision in March or April. 

The euro is hopping after consumer price growth slowed by slightly less than expected in several major European economies. In France, harmonized annual headline inflation eased to 3.1 percent in February, down from 3.4 percent in January. Spanish statisticians saw prices rising at a 2.9 percent annual pace, down from 3.5 percent in the previous month, but higher than market forecasts which had been set closer to 2.8 percent. And several German Länder, or states, reported an acceleration in underlying price pressures. Germany will release nation-wide data shortly, and Eurostat will publish euro area-wide figures tomorrow. Economists had been expecting headline inflation to slow to 2.3 percent from 2.8 percent previously, with the more critical core measure slipping to 2.9 percent from 3.3 percent, but those estimates will likely be revised slightly higher in light of this morning’s data. 

Canadian dollar bulls are trying to avoid jumping to conclusions ahead of an expected rebound in fourth-quarter gross domestic product growth. Heavy immigration flows and an incremental easing in financial conditions likely provided the fuel for a recovery in household spending toward the end of last year, helping avert a recession, but an early January estimate could prove more powerful in determining market direction. A “dead-cat bounce” looks likely in the early spring, but with borrowing burdens climbing and the bulk of the country’s mortgages still awaiting renewal at higher rates, we suspect that the economy will ultimately stumble, helping justify rate cuts from the Bank of Canada beginning in June.