Silence is Golden

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After a volatile fortnight in the market, we appear to be closing this week in a relatively calm manner.  While we never want to encourage complacency, looking ahead through the data releases over the rest of February, we are hopeful that investors are likely in for a relatively calm finish to the month as well. As usual, there are a magnitude of economic data points globally scheduled to be released over the next few weeks but to our eyes, none that have much potential to move the markets, given where the current focus has settled.

Yesterday we discussed the eagerly awaited Consumer Price Index number for the US  – pre-positioning, knee-jerk reactions and pull-backs in our blog Not A Canary In The Coal Mine. Arguably, it was concern about inflation which kicked off the recent storm on the 5th of February, as the S&P 500 sold off aggressively after the market digested the implications of higher than expected wage data. Both equity and bond markets are currently fixated on inflation concerns, and rightly so.  However, there will be nothing to directly sate investors’ appetite for inflation data again until early March, when we get US wage data on March 9th and the next CPI number on March 13th.  Before that we have the January FOMC minutes out on the 21st of February, which could be interesting, but will likely be a further affirmation of how data dependant the Fed’s own actions will continue to be.

Of course, analysts will be scouring more indirect economic releases for clues about how inflation will land in March. A partial mosaic can be built from the hints given from durable goods orders, sentiment surveys, initial jobless claims etc. etc. but no one of these pieces of information will give the market enough certainty about actual inflation to be capable of causing an abrupt movement. Central bankers and other policy makers might make surprising revelations in their speeches and we will keenly follow these. We will also keep our eyes peeled for non-scheduled announcements of the kind we saw last week in Germany (when a country’s largest trade union strikes a 4% pay deal, it is news that should be taken as seriously as any official measurement of prior price changes). As Harold Wilson is quoted saying, “a week is a long time in politics”. Events could certainly overtake our forecast of relative stability, but based on what we see at the moment it looks like time for smoother sailing.

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