Tuesday Focus UK Inflation barely ticks lower Bank reports eyed in US

UK CPI downtick matches forecasts

UK Inflation printed in line with economists' forecasts, keeping the hit to the pound well contained. Cable was down 29 pips at 1.3768 at the time of writing, just slightly below where it was immediately following the data release. This suggests that sterling traders expects inflation to remain relatively underpinned, despite the fact that the longer-term outlook suggests significant declines from some the highest inflation values for decades.

Business prices keep rising
Industrial inflation readings were also released on Tuesday morning and these backed the view that prices could stay somewhat elevated for longer than previously expected. Prices demanded by producers of goods and services rose 3.3% on the year in December, faster than the 2.9% rise foreseen. Hence Tuesday pressure on the pound after it became overstretched at 18 month highs on Monday, may not drag it significantly lower. The pound against the dollar was testing a consolidation zone in the hourly chart with a range of $1.3723-1.3767. If cable falls below, it can be expected to lose traction further and faster.

Elsewhere on the consumer front, the stream of UK retail updates continued, though with better news than the disappointing festive season trading reported by many well-known high street names.  JD Sports' appeared to shrug off signs of a more cautious consumer shown by retail sales readings, enabling the largest sports wear retailer on the market to upgrade forecasts for full year profit. Its shares rose 6.6% at the time of writing and rival Sports Direct's stock was also firm. Both helped advance the FTSE 250 index some 25 points.

Global stock market run frays but continues
In global equities, the robust start to the year was showing a few signs of fatigue though little outright weakness yet. In Asia, top indices managed to erase intraday losses and stage yet another run to fresh records. MSCI Asia Pacific Index, which excludes Japan, rose another 0.5% but other important index contributors in the region hung back. Aussie shares slid, 0.5% as miners retreated. The latter sector move was down to iron ore prices in China showing renewed weakness. This also accounted for the UK's FTSE 100 underperformance of Europe, whilst Germany's DAX rose 0.8%. In Japan the Nikkei 225 jumped 1%, touching its highest since 1991 on some relief that the yen's sudden acceleration last week petered out fast. Strong corporate earnings expected in the region were another reason. It was looking like another solid day ahead in the States with the Dow Jones futures up a stonking 244 points, equating to almost 1%, in-keeping with sizeable moves of the last three sessions, that are striking in being almost double the daily range of the last year.

Currencies: watch the dollar via cable
In currencies, the euro budged up to $1.227, close to Monday's near one-month high at $1.2296. The single currency was reacting to a Eurozone trade surplus at the highest in 8 months, backing the view that a strong currency was having no negative pass through effects to business, yet. Naturally though, the long-running dollar-weakness story is also playing a part, though it took a breather vs. the yen, despite the Dollar Index looking stuck near three year lows. Japan's Finance Minister may have played a part in the yen softening. He said he did not see problems with the dollar weakening to around 110.80 yen, but that big swings in currencies would be problematic. The dollar's travails are also evident in sterling - the main watch for this morning, after in-line inflation data.

Citigroup faces tax hit
On the earnings front, the next set of major U.S. banks are in the spotlight, with Citigroup releasing a fourth quarter report in the early afternoon and the impact of the new tax regime in strongest focus. Investors are expected to look past the negative short-term impact from revaluations on tax breaks following new legislation so long as the group confirms it expects long-term advantages from lower taxes. Another proviso is that there should be no major upsets in other important businesses, particularly lending and trading.