Yesterday markets opened on a positive tone buoyed by Mubarak’s resignation in Egypt and upbeat macroeconomic figures in China, which boosted shares of the commodity sector. However, dollar performance was mixed during the Asian session overnight with losses incurred against the euro, while further gains were made versus the yen. There were no major data releases in the US overnight, but today should be more eventful with Retail Sales and TIC Long-Term Purchases figures both due to be released. A disappointing headline print of retail sales could knock the dollar and Treasury yields lower.

The Chinese CPI for January was reported as expected at 4.9% but given that the authorities had altered the make-up of the ‘inflation basket’, de-emphasising the food component and adding weight to residential related spending, we will need a few months’ reports to establish a new trend. The Bank of Japan left both their official rates and the size of their asset purchase programme unchanged (zero – 0.1% target and Yen 5 trillion respectively) but did issue a slightly more upbeat assessment of the domestic recovery – a change in dialogue from the previous month which allowed the Yen itself to initially firm, although the ground was then lost to a firmer Euro. The Australian Central Bank’ minutes painted a very rosy picture of their own domestic economy going forward. Despite the expected impact to GDP of the severe flooding, the RBA view is that the economy will claw back the loss during the 2nd quarter and that solid job growth, tighter labour market and the medium term inflation outlook will mean that the current slightly restrictive policy stance remains appropriate.

Today there is a raft of meaningful data across the trading day with Eurozone 4th qtr GDP, the German ZEW survey, UK CPI and the January advanced retail sales numbers from the US. Added to that, the Riksbank have also met this morning and as expected have raised Swedish interest rates by 25 basis points to 1.50%.

The Eurozone data is having the effect of putting a temporary floor under the Euro with both pieces of data expected to be reported at the bullish end of predictions. The Euro itself has spent the last couple of trading sessions on the back-foot and the lack of any meaningful developments (in resolving the current Eurozone problems) following the break up of yesterday’s Eurogroup meeting left the market

disappointed. The marginal recovery in the currency has allowed a bit of profit taking to take place but any move higher in Euro/$ will only present Euro bears with a better level at which to sell.

UK CPI came in at +0.1% m/m +4.0% y/y which was exactly in line with median forecasts the main driver being fuel, restaurant prices, furniture and alcohol. This has pushed Sterling higher this morning and now sits GBPUSD1.6091 and GBPEUR1.1889. However, the real importance in the figure will be seen tomorrow when the BoE’s governor, Mervyn King explains the current strategy following the publication of the Quarterly Inflation Report. Sterling still under-pinned on the higher rates, sooner rather than later scenario. Lastly, the market will want to see just how much effect the persistent bad weather is having on US consumer activity. There is more possibility that reaction in markets will occur following a better than expected figure however as any negative out-come will be explained away by the weather and dismissed whereas a stronger number will be taken at face value.

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