Daily Market Report - 02/03/2015

Consumer prices from Germany,Italy and Spain signalled an easing of deflation risks in the euro area. In Germany prices fell 0.1 percent, less than the 0.5 percent drop forecast. Italian inflation was 0.1 percent this month better than the minus 0.3 percent rate predicted  while Spanish prices fell less than estimated.

Plunging oil costs have damped inflation across the globe, including in the U.S. and the euro area, where consumer prices fell 0.6 percent in January. While the latest data  along with an increase in oil from its recent low,may indicate the worst of the inflation slump is passing, the euro-region economy remains weak and lumbered with high unemployment.

The German data also showed that prices rose 1 percent in February from the previous month. Spanish prices fell 1.2 percent from a year earlier after a 1.5 percent decline in January, which was the biggest since 1997. The Italian inflation reading was the first above zero in three months.

American households picked up spending in the fourth quarter and remained confident in early 2015 indicating the economy is poised to overcome any bumps caused by slower global demand. The biggest gain in consumer purchases in four years helped gross domestic product expand at a 2.2 percent annualized rate at the end of 2014.

An improving job market and generally cheaper fuel probably will help sustain consumer spending, which accounts for almost 70 percent of the economy. That will be critical in supporting the expansion as the lingering effects of the work stoppage at West Coast ports and harsh winter weather, combined with a rising dollar and slower growth among trading partners, hold back American factories.

The GDP reading was revised down from a prior estimate of 2.6 percent, restrained by a smaller gain in stockpiles and widening trade gap. The GDP report showed household consumption grew at a 4.2 percent annualized rate in the fourth quarter, the most since the last three months of 2010. Demand for services climbed 4.1 percent, the most since 2000.

Job growth has strengthened over the past year, with payrolls rising 257,000 in January to cap their strongest three-month run in 17 years. However one area the that is struggling to sustain momentum recently has been manufacturing. The Institute for Supply Management business barometer slumped to 45.8 in January from 59.4 the prior month, according to a report Friday. It was the first time the measure dropped below 50, signalling contraction, since April 2013. 

Key Announcements:

GBP- 09:30 : UK manufacturing PMI (Feb) expected to be higher at 53.5 from 53.0 
EUR- 10:00 :Eurozone CPI estimate (Feb) expected to increase from -0.6% to -0.5%  
USD- 15:00 :US ISM Manufacturing PMI (Feb)  expected to be lower at 53.1 form 53.5 

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