January 5, 2018 / 8:43 AM / 9 months ago

Daily Briefing: No inflation speed-bump for equity bull run

LONDON (Reuters) - As the new year roars in and world stock markets blast out new records, eyes inevitably turn to central banks to see whether this long-running bull market will eventually be stopped by stepped-up monetary tightening.

Trader Peter Tuchman wears a hat as the Dow Jones Industrial Average rises above 25,000 on the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., January 4, 2018. REUTERS/Lucas Jackson

But without a quickening inflation pulse, it’s hard to see where that will unfold. Friday gives two crucial data signals in that regard, the flash euro zone inflation number for December and the U.S. December inflation report.

For the European Central Bank at least, the headline is not expected to ruffle many feathers as consensus forecasts are for a dip to 1.4 percent from the prior month’s 1.5 percent – still well below its target of just under 2 percent despite robust economic expansion and the recent acceleration higher in oil prices. Early indications from France and Germany, however, suggest the consensus may be on the low side.

For the Federal Reserve, the private sector ADP job readings for last month were up a whopping 250,000 and today’s monthly employment report is expected to add 190,000 non-farm payrolls over the whole economy. But again, the key data point will likely be average earnings growth, which is expected to be unchanged at a relatively modest 2.5 percent.

Euro/dollar is down slightly on Friday after another surge to 4-month highs on Thursday. Ten-year U.S. Treasury yields are unchanged about 2.46 percent, but the 2- to 10-year yield curve flattened to below 50 basis points as short yields continue to nudge higher in the face of impressive positive data surprises.

On Wall St overnight, the Dow Jones index crossed 25,000 for the first time ever as new records fell across the indices – but Vix volatility levels remained extremely subdued near historical lows just above 9 percent. Asia bourses continued the trend overnight, with the boom in Japan’s Nikkei to 26-year highs this week adding another 0.8 percent overnight and Chinese and South Korean blue chips advancing strongly again too. The Asia-exJapan MSCI index is now within 1 percent of record highs and the global MSCI emerging markets equity index is within sight of its peaks of 2011. The MSCI all-country index set an all-time high earlier today.

Soundings from the UK were less upbeat. A survey showed that British retailers’ sales fell for a fifth year in a row, while car sales saw their biggest drop since 2009.

Greek 10-year government bond yields fell to their lowest level in 12 years, meantime, on the combination of super-easy ECB monetary policy and the ongoing recovery of the Greek economy and bond markets.      

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editing by John Stonestreet

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