February 13, 2018 / 8:25 AM / 6 days ago

Daily Briefing: UK inflation - slowing at last?

LONDON (Reuters) - The fall in sterling after the June 2016 Brexit vote has been one of the defining factors of the UK economy in recent months but now the impact on domestic prices is fading and inflation is finally expected to slow this year, giving some respite to households.

Data due this morning is expected to show that the consumer price index to edge down for a second month in a row to 2.9 percent in January. That in turn will feed into market views on whether the Bank of England will press on with a fresh interest rate hike as early as May.

That question - and economists’ views on the underlying strength of the economy - will be the subject matter for a Reuters Poll on Tuesday.

Italy's Matteo Renzi was once the great hope for reform in Europe but his star has faded since he resigned as premier in 2016 after losing a referendum on constitutional reform.

He has also faced an internal battle over the leadership of his centre-left PD party, which is trailing in the opinion polls ahead of a March 4 national election and looks certain to lose power. Most recently, he has also faced accusations that he is packing the PD’s electoral list with close allies as a way of shoring up his own tenuous position.

Today Renzi gets the chance to tell the world his side of the story in a briefing for foreign media.

When you have a wealth fund worth over $1 trillion, other people take note of what you’re investing in.

That is particularly true of Norway’s sovereign wealth fund, which in addition aspires to a profile as an ethical investor.

Only a couple of weeks ago it excluded nine companies from its portfolio and has separately trimmed holdings in the world’s largest greenhouse gas emitters. It will give an update on its efforts at 0900.

MARKETS AT 0806

Higher volatility can cut both ways. After the worst week in two years, global equities stage their best day in almost 10 months.

The MSCI all-country index of world stocks rallied more than 1 percent on Monday and has continued rising early on Tuesday, helped by the second-consecutive day of gains on Wall St after last week’s shakeout.

The Vix index of S&P500 volatility recorded its lowest close since Feb 2  at just below 26 percent, although S&P futures were down about 0.5 percent overnight.

U.S. Treasury bonds have reacted calmly to President Trump’s budget proposals, where spending cuts on welfare programmes were tabled as one way of funding $1.5 trillion of tax cuts and the $200 billion of Federal money to spur infrastructure ventures with local, state and private partners over the next 10 years.

Despite the equity market rebound, 10-year Treasury yields have slipped back to 2.8350 percent from an early high of 2.9020 percent on Monday.

The dollar was weaker across the board, with the DXY index down almost 0.5 percent and euro/dollar back above $1.23.  

Asia markets outside Japan were buoyant – with major indices in Shanghai, HK and Seoul all up smartly.

Monday’s news of a big acceleration in Chinese lending and a Beijing official urging major corporate shareholders to buy more stock overnight helped the recovery there.

Japan’s Nikkei underperformed and ended in the red as the dollar decline resumed. European stock futures were lower, weighed down by the higher euro.

In a key week for January inflation reports on both sides of the Atlantic, the UK consumer price report will be the big economic release on Tuesday.

The consensus forecast is for British headline inflation to slip to 2.9 percent from 3.0 percent, even though the core rate is expected to pick up to 2.6 percent from 2.5 percent.

With the Bank of England warning of another interest rate rise over the coming months, sterling is mixed going into the inflation data – slightly higher against the dollar but off against the euro. U.S. CPI inflation on Wednesday is likely to be a bigger event for world markets as nerves about an overheating U.S. economy and the chance of as many as four interest rate rises from the U.S. Federal Reserve this year rise.

Elsewhere, the ‘Will he? Won't he?’ saga over the fate of South African President Jacob Zuma continues.

Following a marathon meeting capping two weeks of political stalemate and intrigue, South Africa’s ruling ANC party finally decided to remove Zuma from the post of president overnight but it’s still unclear if they will be forced to unseat him through parliament or not.

The ANC is expected to hold a media briefing at 1000 GMT, the state broadcaster says Zuma was given 48 hours to resign.

South African stocks are on a roll, up nearly 1 percent in their best daily gain in a month, though the rand takes a breather, edging 0.5 percent lower after strengthening more than 1 percent in each of the last two sessions.

Editing by Matthew Mpoke Bigg

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