Wall Street is expected to open higher in two hours time, as trade deal optimism continues to push shares up.
The Dow Jones industrial average is expected to gain 80 points, or 0.3%, after President Donald Trump said he may let a China trade-deal deadline “slide” if the two sides were making enough progress.
Newsflash: There’s drama in Spain, where the parliament has just voted down the government’s 2019 budget.
That’s a blow to Spain’s socialist government, who have been blocked by an alliance of rightwing parties and Catalan secessionists.
It could trigger early elections, bringing more uncertainty to the euro area. This has knocked shares in Madrid, a little, and pushed up Spanish borrowing costs slightly.
My colleague Sam Jones explains:
Government and PSOE party sources said the snap election date had not been set, although 14 April was most likely, followed by 28 April because [PM Pedro] Sánchez wants a ballot as soon as possible to mobilise left-leaning voters against the threat of the right coming to power.
The Socialists are ahead in opinion polls – which show them on around 30% of voting intentions – but the two main right-of-centre parties together poll at more than 30%. In Spain’s most populous region of Andalucía they unseated the socialists last year with the help of the far-right party Vox.
Back in the City, the FTSE 100 is closing in on a new four-month high.
The blue-chip index is now up 50 points at 7184, only a few points away from last week’s peak.
Top risers include packaging firm DS Smith (+4.6%), mining group Antofagasta (+3%) and jet engine maker Rolls-Royce (+2.8%) .
This chart, from the inflation report, shows how the energy price cap kicked in, pulling the cost of living down;
Thomas Wells, manager of the Smith & Williamson Global Inflation-Linked Bond Fund, fears a disorderly Brexit would send inflation soaring again:
“With the UK mired in a major political crisis, we are still conscious that a ‘crash out’ Brexit would deliver a short-term inflation shock.”
That shock could include a tumbling currency, making imports pricier, and problems at the ports – creating supply shortages. That’s a recipe for higher prices.
Nice emoji work here
The slump in eurozone factory output shows European manufacturers are being hit by a swath of problems – at home and abroad.
Bert Colijn of ING (who may have been enjoying a recent BBC hit drama) explains:
The eurozone industrial sector is plagued with more drama than an average episode of The Bodyguard. Trade wars, emission standard related production delays, yellow vest movements and slowdowns in emerging markets have all played a part in the weakening of production over recent months, causing two quarters of declining production.
While the headline figure was much worse than anticipated, durable goods production increased in December and intermediate goods production was flat after a sharp decline in November. Out of the large economies, both Germany and France saw production increase, while Spain, Italy and the Netherlands contributed to the decline.
The rollercoaster ride for industry is far from over as deadlines on the China-US trade dispute and Brexit are coming closer.
Here’s my colleague Richard Partington on the drop in UK inflation:
One month’s decent inflation figures doesn’t make up for 10 years of austerity….
Good news for cash-conscious families: Stephen Clarke of Resolution Foundation thinks inflation will keep falling:
Yikes! Eurozone factories have just suffered their worst month since the financial crisis.
Industrial production across the eurozone shrank by 0.9% in December, new figures show. That means output was a shocking 4.2% lower than a year before.
This will reinforce fears that the eurozone economy is weakening, and could face a tough 2019.
UK house price growth weakest since 2013
UK house price inflation has also slowed, to a five year low.
Average prices rose by 2.5% year-on-year in December, the ONS reports, down from 2.7% in November.
Prices continued to fall in London, down 0.6% compared with a year ago.
These UK inflation figure are a real boost to household incomes.
They could help people save a bit more, says Kate Smith, Head of Pensions at Aegon:
“Inflation fell for the third month in a row to 1.8% in January, the lowest level since January 2017, bringing the 12-month rate finally below the Bank of England’s target of 2%. With the latest wage growth figures showing a positive trend, the gap between earnings and inflation continues to widen and households will feel an ease in the cost of living. In the period of real wage growth, individuals should find themselves in a strong financial position to set out financial goals and those who can afford to save any additional income should be encouraged to do so.
Taking a glass-half-empty approach, weak inflation can also be a sign that economic activity is cooling.
Nancy Curtin, chief investment officer of Close Brothers Asset Management, explains:
“Despite the UK labour market remaining tight, political and economic uncertainty have held prices down. With oil prices low on the back of weaker global demand and air fares tumbling, inflation has kept close to the Bank of England’s target.
“The sluggish UK economy is symptomatic of the wider picture. Central banks across the globe have taken their foot off the stimulus pedal and we are now seeing the results. With idiosyncratic issues in both the US and Europe slowing growth, Brexit affecting the UK, trade disputes, and a Chinese slowdown, we’re indisputably in a mid-cycle slowdown. A global recession seems a far flung prospect, however in the UK Carney must be flexible and data-driven, putting decisive monetary policy on the back burner until greater political and economic clarity emerges.”
Irony of the day: January’s inflation report shows that the energy price cap helped UK households… just a week after regulators agreed to LIFT the cap because wholesale prices have risen.
Falling inflation: snap reaction
Here’s some instant reaction to the unexpectedly large drop in UK inflation:
Falling inflation means that real wages are rising.
Average basic pay in the UK rose by 3.3% per year in the quarter to November (the most recent data available). So if inflation is just 1.8%, that means real earnings are growing by roughly 1.5% per year.
Here’s the Office for National Statistics’ explanation for how cheaper energy has pulled inflation down over the last year
The largest downward contribution to the change in the CPIH 12-month rate came from housing and household services, where gas and electricity prices fell, between December 2018 and January 2019, by 8.5% and 4.9%, respectively.
The downward movement partially reflected the response from energy providers to Ofgem’s January energy price cap which came into effect from 1 January 2019.
Clothing and footwear price have fallen over the last 12 months, today’s inflation report shows.
That’s a sign that struggling retailers have been slashing prices in an effort to lure shoppers.
As you can see, food, alcohol, housing and transport all became more expensive other the last year – but by less than in the previous 12 months.