US January CPI Inflation Takes Center Stage Today

In the markets:

The new week began calmly with no major news, keeping yields near resistance levels. US yields changed minimally as investors awaited the CPI data. Bunds slightly outperformed Treasuries. Belgian ECB governor Pierre Wunsch’s balanced comments hinted at potential tradeoffs between waiting and economic strength. The Eurostoxx 50 reached another cycle high, while US indices closed unchanged. The dollar slightly outperformed, with EUR/USD testing 1.08 before closing at 1.0772, and DXY making marginal gains at 104.17.

Asian markets reopening after a holiday showed gains of 1%-2%+. US Treasuries were stable, with a marginal dollar gain (EUR/USD 1.077, USD/JPY 149.5). Later today, US January CPI inflation data will be crucial. Headline inflation is expected at 0.2% M/M and 2.9% Y/Y, while core inflation is expected at 0.3% M/M and 3.7% Y/Y. The core monthly dynamics are crucial for monetary policy, with recent trends suggesting uncertainty about sustained 2% inflation. Any surprises could affect market expectations on the timing of the easing cycle.

News highlights:

The US Treasury reported a 16% rise in the budget deficit for the first four months of fiscal year 2024, driven by interest rate costs. European Union proposed trade restrictions on companies, including Chinese firms, accused of aiding Russia’s military and defense sector. The proposal, if approved, could impact EU-China trade relations.

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