Hunt For A Narrative Goes On As Uneventful Trade Continues

WHERE WE STAND – Markets were relatively subdued once more yesterday, conditions that are beginning to grate, though remaining patient in a quiet market is, as always, of pivotal importance.

I’m also wary not to live up to the British stereotype of moaning about anything and everything, though folk who know me would say I failed at that long ago. Just how our weather is always too cold, or too hot, or too wet, or too windy, we’re at a juncture where participants grumble when there’s a barrage of data and headlines to digest, then grumble some more when there isn’t much going on!

Anyway, there was again a lack of catalysts throughout Wednesday, seeing most markets remain within the holding pattern that has dominated much of the week so far.  

That said, we did receive the latest UK inflation figures yesterday, which once again make grim reading for the BoE. Headline CPI rose 3.0% YoY in January, well above the Bank’s 2.8% forecast, and a chunky increase on the 2.5% pace seen at the back end of last year. A few one-off factors are in play here, such as VAT being charged on private education, a rise in bus fares, and statistical quirks owing to airfares, but the nub of the matter is that inflation remains both too high, and is moving in the wrong direction. Underlying price pressures also remain intense, with services CPI having risen 5.0% YoY as the year got underway, though perhaps the only silver lining was this being below the Bank’s 5.1% expectation.

In any case, the figures reinforce the ‘stagflationary’ backdrop that continues to face the UK economy, as growth remains anaemic at best amid plentiful downside risks, and inflation stays elevated with a rise towards a 4% headline print likely as the year progresses. Certainly, there’s nothing in the figures that is likely to prompt the BoE to move away from the current “gradual” pace of easing, with one 25bp cut per quarter remaining the base case for the time being. There’s also nothing in the figures which makes me want to change my long-standing bearish view of GBP-denominated assets, with cable surrendering the 1.26 figure yesterday.

Elsewhere, influential ECB policymaker Schnabel was on the wires with some surprisingly hawkish commentary, noting that the Governing Council are “getting closer” to the point where cuts can be paused, or halted, and that discussions over dropping the “restrictive” label should begin at the next meeting in March. Such a stance doesn’t seem to represent consensus among policymakers just yet, setting up a Schnabel vs. Lagarde battle for the second quarter. My money would be on the latter winning out, and further cuts down to around 2% on the deposit rate being delivered in relatively short order, though the EUR is unlikely to care especially much, with focus for the common currency remaining on trade developments.

Minutes from the January FOMC meeting, meanwhile, brought nothing by way of surprise, with the Committee firmly on hold for the time being amid ongoing economic resilience, and continuing to stand pat until further inflation progress is made. Commentary that is, obviously, very much in line with recent remarks from Fed speakers, while the minutes are also somewhat stale given the inordinate number of Trump tariff threats seen since that meeting. The idea that QT may be slowed, or halted, until the debt limit is resolved was a bit of a fillip for Treasuries, though, and good for some brief upside in stocks, while tying in nicely with the idea of a ‘balance sheet put’ I outlined in a note yesterday - here.

More broadly, participants are shouting ‘give us a narrative, any narrative!’. There’s still essentially nothing on the data docket, markets have become somewhat desensitised to most trade headlines, and we all just stare into a big vat of nothingness. Doing nothing new is probably the best strategy amid this market inertia, as conviction remains lacking. Albeit, I retain my longstanding long USD and long equity biases.

LOOK AHEAD – It will, I’m sure, come as no surprise to learn that today’s data docket is also rather barren.

The weekly US jobless claims figures stand as the most interesting – and only! – major release, albeit with initial claims set to have held broadly steady at 215k in the week to 15^th February. The data might be of interest for two reasons though; firstly, as it coincides with the February NFP survey week, and secondly amid particular focus on initial claims in Washington DC, as Elon Musk’s DOGE conduct increasing numbers of federal government layoffs.

Besides that, four Fed speakers await, along with Nagel and Makhlouf from the ECB. The earnings docket is also a tad busier, with reports from Walmart (WMT) and Alibaba (BABA) due before the opening bell.