Mixed U.S. Inflation Data and New Head of BoJ | Daily Market Analysis

Key events:        

• UK – CPI (YoY) (Jan)  
• USA – Core Retail Sales (MoM) (Jan)
• USA – Retail Sales (MoM) (Jan)
• Eurozone – ECB President Lagarde Speaks     
• USA – Crude Oil Inventories

The January U.S. Consumer Price Index fell to 6.4%, which may determine market expectations regarding the Federal Reserve's plans to raise interest rates in the near future. In England, inflation data is coming out today and Kazuo Ueda looks set to become the next head of the Bank of Japan. Here's what you need to know about the financial market on Wednesday, February 15.

U.S. annualized inflation slowed to 6.4 percent in January, according to the Federal Bureau of Labor Statistics website. Analysts had expected a decline to 6.2%.

Core inflation (excluding food and energy prices) fell to 5.6%.

The latest U.S. consumer price index could be one of the most important economic releases of the year; will it allow the Federal Reserve to cut rates later in 2023 or is a more decisive rate hike on the agenda?

Much attention is focused on the benchmark, which does not take into account fuel and energy prices.

"Many business contracts are typically renegotiated in January, and companies have traditionally set new prices that are rarely fixed lower," said Stephen Innes of SPI Asset Management. - January price inflation also correlates with production cost inflation from the previous year, which was significant."

Analysts had hoped that the numbers would provide better evidence that last year's successive interest-rate hikes to curb inflation would produce results. Growth stocks in particular have rallied this year in the hope that the Fed might soon pause its rate hikes.

But hopes for an end to that process soon are waning. Many now see another quarter-point rate hike at the Fed's March meeting and at least one more after that in May, with the benchmark rate rising to above 5% by mid-summer.

The U.S. National Federation of Independent Business' small business optimism reading for January was 90.3, lower than expected, though higher than the previous reading.

Needless to say that the U.S. stock market fell after the report:

Apart from that, Ueda is nominated to head the Bank of Japan

The Japanese government on Tuesday officially nominated Kazuo Ueda as the next central bank governor, confirming speculation that began circulating late last week.

If confirmed, Ueda would succeed Haruhiko Kuroda, whose term expires on April 8, and become the first postwar head of the Bank of Japan to come from academia.

He will face the daunting task of adapting his predecessor's complex yield curve management policies, which caused the yen to fall to a 20-year low against the U.S. dollar, and not derail the fragile economic recovery.

At the same time, the UK inflation report for January is due today to show double-digit year-over-year price growth, which would be grounds for raising interest rates, even though it is the only G7 economy that the IMF predicts will contract this year.

European stocks, which came close to a yearly peak on Tuesday but ended up staying flat, will open lower as Euro Stoxx 50 futures declined.

STOXX 50 daily chart

The Bank of England was forced to raise borrowing costs, even as the economy struggled after the post-pandemic recovery stalled amid the country's cost-of-living crisis.

Although Britain's basic wages rose faster again in the last three months of 2022, retail sales in December – when people are most likely to shop - fell the most this month in 25 years.

The Financial Times reported Tuesday that British Prime Minister Rishi Sunak and Treasury Secretary Jeremy Hunt are considering an agreement to end a wave of strikes among public sector workers that would delay next year's wage increases.