Rachel Reeves gets a little breathing space
Yesterday’s Producer Price Index reported a 0.2% month-on-month rise in output prices against the expected 0.3%. Year over year, prices rose by 3.3%, all slightly better than forecast. This gives hope that today’s CPI report will likewise bring some good news. US bonds rallied modestly, and stocks likewise managed very modest gains, giving some of the rise from earlier in the day.
Today also marks the start of the 4th earnings season, kicked off by JP Morgan, Goldman Sachs, Citigroup, and Wells Fargo all reporting. They’ll be followed by Bank of America and Morgan Stanley on Thursday. The S&P 500 is expected to deliver earnings growth of around 8%, which would match the third quarter. Revenues are forecast to have risen 5%; expectations are clearly for margins to improve. According to BCA research, analysts are forecasting earnings to grow by 15% year over year. As always, the outlook statements draw the most interest.
As we wait for news from America, we got the latest UK inflation data this morning. Yesterday, the embattled chancellor told Parliament she was “absolutely committed” to sticking to her fiscal rules. I’m not sure she had any choice, and it was a plucky performance. Finally, some good news for Ms Reeves: UK inflation fell year on year to 2.5%, against an expected rise to 2.7%. The core rate fell to 3.2%, against an expected 3.4%. That could spur a rally in the UK bond market and encourage the Bank of England to look more favourably at cutting rates in the coming months. The devil will be in the detail.
Another budget has not been ruled out, possibly in the spring. One could imagine spending cuts and possibly some easing of fiscal policy being announced. US treasury markets rallied yesterday on the PPI report, and UK gilts will do likewise today. Now, we wait for the CPI.