US CPI provides today’s centrepiece

• Record highs in Europe despite patient Powell approach.

• US CPI provides today’s centrepiece.

• Financial stocks well positioned.

Record highs for the likes of the FTSE 100, DAX, and Eurostoxx have highlighted the ongoing case for European equities, as investors continue to diversify despite concerns over a potential trade war between Europe and the US. The divergence in monetary policy has been highlighted once again by Powell, with the data dependant approach from the Fed providing an expectation of just one cut this year. That stands in stark contrast to the 2-3 cuts expected from the ECB and BoE. In any case, markets are likely to remain responsive to Trump’s actions and the perceived implications for inflation, with the Fed’s data dependant approach meaning that they could ramp up the easing in H2 if we see inflation pressures ease further.

Today is all about the US inflation report, with markets hoping to see an end to the trend of ever higher monthly CPI readings that reached 0.4% for December. There is a concern that January marks an obvious time for businesses to raise their prices in the wake of the festive period, with core inflation expected to post its fifth 0.3% gain from the last six months. However, the impact of Trump’s assault on energy prices should help lower the headline inflation metric, which could ease concerns around a resurgence in price pressures. For today, it is important to dispel the notion that Trump’s Presidency will be inflationary, and thus the ability to drive down headline inflation through lower energy prices will be key on a day that has seen crude rolling over.

The UK banks are outperforming in early trade, following on from a session that saw their US counterparts in the green. At a time where markets are cautious about the possibility of higher for longer US rates, the financial sector stands perfectly positioned to take advantage of the ideal environment of high growth, high rates, high business confidence, and a strong stock market.