At 1.8% the CPI reading is now inches away from the long-held 2% target set by the Bank of England – once it crosses that mark, likely in the next few months, Mark Carney and co. can expect more and more speculation about when the central bank will raise rates. However, this morning’s number wasn’t quite as high as the 1.9% forecast, causing the expectant pound – which had risen yesterday on the prospect of that figure – to drop half a percent against the dollar and 0.7% against the euro.
Normally this news would have been like catnip for the FTSE. Yet the UK index sat flat at 7290, hampered not only by a 5.4% decline for Rolls-Royce, as investors react to the company’s all-time high annual loss, but the (temporary or otherwise) disappearance of yesterday’s jubilant trading. This latter point, alongside disappointing GDP and ZEW economic sentiment readings, also affected the Eurozone indices, the DAX and CAC both struggling to build on Monday’s levels.
Looking ahead to the US open and the Dow Jones is facing the same thing, the futures pointing to a stagnant start to the session. Of course, that still leaves the Dow just above 20400 – in fact the index could sneeze and it would hit a fresh record peak. In terms of motivation, the main focus in the US this afternoon will be Janet Yellen’s testimony in front of the Senate Banking Committee, with investors on the lookout for comments on both the Federal Reserve’s rate hike policy and Yellen’s opinions on the risk posed by President Trump.