Market Talk

From the FXWW Chatroom: This will be a very busy week for financial markets. In the US, the FOMC meeting on Wednesday and January employment report on Friday are the key events. We expect the Fed to keep policy on hold, while we look for nonfarm payrolls to have increased by 175k, with the unemployment rate dropping to 4.6%. In the euro area, preliminary Q4 GDP data are released on Tuesday along with the January ‘flash’ inflation data. Barclays forecasts a 1.6% y/y headline euro area HICP print while we expect core inflation to edge lower to 0.8% y/y. In the UK, the MPC decision, minutes and Inflation Report are all due on Thursday. We do not expect any meaningful change in rhetoric from the MPC and policy is not expected to be changed at this stage. Governor Carney hinted at possible upward revisions to the BoE macro forecasts in a recent speech; as inflation averaged close to BoE forecasts in Q4, growth forecasts look the most likely to be revised higher in our view. We do not expect the committee to counter the market pricing of Bank Rate; however, the resilience of inflation breakevens could attract some attention. Should the BoE push back against the market pricing of the inflation outlook (all RPI swap curve forwards are priced above the 2% CPI target adjusting for the RPI-CPI basis) then breakevens could be vulnerable in our opinion.

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