MORNING BID-Inflation: the dog still isn't barking

A look at the day ahead from Julien Ponthus

Perhaps one of the most intriguing feature of economics in recent years is the inability to both forecast and prop up inflation. The good old days of the Phillips curve predicting a stable relationship between employment, economic growth and prices seem long gone.

Still, data showing U.S. inflation stayed flat in January came as a bit of a surprise, given the sheer amounts of stimulus being thrown at the economy.

While President Joe Biden is aiming for a $1.9 trillion spending package, the Fed, as its chief Jerome Powell repeated last night, won’t consider slowing the printing presses until the 2% inflation figure is reached — and exceeded.

So no bark from the dog so far. But watch U.S. weekly jobless claims due later on Thursday.

The data and Powell’s comments reversed an eight-day long Treasury selloff streak, with 10-year yields sliding to 1.135%, well off Monday’s 1.2% levels. The dollar too is down for the fourth straight day.

So far though, investors don’t seem to be having second thoughts about doubling down on the reflation trade, which lifted global equity markets to new record highs in Asia. And more than 80% of U.S. companies have so far beaten forecasts for Q4 earnings.

In Europe too, bank shares are near 11-month highs. Despite huge Q4 losses, the pandemic impact seems to have been tempered by investment banking operations. Germany’s Commerzbank reported net losses of $3.3 billion while Credit Agricole posted a 92.6% profit drop

Key developments that should provide more direction to markets on Thursday: -U.S. initial jobless, 30yr bond auction -New York Fed President John Williams speaks -Central bank meetings in Peru, Serbia, Philippines and Mexico -UK Rics housing survey -European results – AstraZeneca forecast 2021 revenue growth and beat analysts’ sales estimates; Spirits group Pernod Ricard expects sales to return to organic growth in 2020/21; Zurich Insurance ZURN.S reported a 20% fall in 2020 operating profit on Thursday -U.S. results with Pepsico, Kraft Heinz, Kellog, Walt Disney

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