Waiting for the longer term
Posted by: Paul Donovan
- Today is quiet, ahead of this week’s central bank meetings in the US, the UK, and the Eurozone. There is also the enticing prospect of the US employment report, which investors have a lot of faith in (despite of the decline in the data quality).
- Spanish January consumer price inflation is expected to decline—since peaking at 10.7% y/y last July, the number has plunged. “Consensus” expects a number of less than half the peak. “Consensus” is a very wide range of only eight forecasts, and no two forecasts agree. Italian producer price data will gather less attention. The Dallas Fed business sentiment opinion poll is not especially important, but the comment section is a good reminder of the extent of political bias in such surveys.
- Investor focus is less on monetary policy tightening this week, and more on when the monetary policy peak will come. The slowing of inflation is faster than central bank models might expect, perhaps because profit-led inflation is likely to reverse more quickly than wage-driven inflation.
- Growth is slowing, but is not as bad as expected. Job security is part of that, and while lower income households are under strain middle-income households tend to have more robust balance sheets.