After a truly wild, if not unprecedented, initial reaction the markets quickly calmed down following news of January’s US inflation data.
On a month-on-month basis the headline inflation figure rose from 0.1% to 0.5%, skipping past the 0.3% forecast, while year-on-year the reading remained at 2.1%, avoiding the expected dip to 1.9%. The hawkishness of these figures was somewhat tempered, however, by the sharp drop in US retail sales, which fell from 0.4% in December to -0.3% in January.
The latest CPI numbers clearly provided an immediate gut punch for those investors fearing a rate-hiking Federal Reserve, the boards suddenly bathed in red within seconds of the release. However, in a potential sign of resilience the markets soon shook off those losses, with the European indices especially actually stretching their legs in the aftermath.
Recovering from the shock of the US inflation data the FTSE managed to climb 0.8% higher, an improvement on its midday half a percent rise, The DAX and CAC, meanwhile, almost doubled their growth with 1% and 1.1% rises respectively. The Dow Jones wasn’t quite as enthusiastic, though the index will surely take a 0.3% increase given the size of its initial post-CPI losses.
This erratic showing was echoed on the forex markets. Understandably the faster than forecast jump in inflation was catnip for the dollar, which soon found itself up half a percent against the pound and the euro. However, that growth proved to be short-lived, with investors seemingly deciding that today’s data didn’t change much, with the greenback slipping into the red against its currency rivals.
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