Week in Review

US Inflation Accelerates

A review of the week's top global economic corporate and earnings news. 


For the week ending 16 February 2018

  • US inflation measures rise more than expected
  • Yields on US Treasuries rise to highest levels since 2014
  • South African president forced to stand down
  • Eurozone growth steady, Japan's slows
  • IEA: “extraordinary” growth in US oil production

Global equities rebounded this week despite a rise in US bond yields and an uptick in inflation. Oil recouped some of last week’s losses to trade at $61 as of late Friday morning. Volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), subsided to 19, after brushing 50 in recent weeks. 


US price pressures pick up
After several months of subdued readings despite tight US labor markets and above-trend economic growth, US inflation showed signs of accelerating this week. The Consumer Price Index (CPI) rose a stronger-than-expected 0.5% m/m in January and 0.3% excluding food and energy. Year over year, prices rose 2.1%, 1.8% excluding food and energy. Furthermore, producer prices saw rises of similar magnitude. A jump in apparel prices in the CPI data was seen as a potential one-off, which could prompt slower price gains going forward. Import prices ticked up in January on the back of a weaker US dollar, a small but supplementary piece of the price puzzle. The pickup in price pressures shouldn’t force the US Federal Reserve to alter its rate-hiking path just yet, with investors anticipating three to four quarter-point hikes in the federal funds rate target before the end of 2018. In other US macro news, retail sales figures for January were disappointing. Sales fell 0.3% on the month, well below expectations for a 0.2% rise, while industrial production dipped 0.1% in January, which was weaker than the consensus forecast for a 0.2% increase. 

US yields continue their climb
Stabilizing equities — the S&P 500 Index had its best five-day run since 2011 through Thursday’s close —and firm inflation data translated into 10-year Treasury note yields reaching their highest level since 2014 earlier this week. Rates peaked at 2.94% before easing to 2.87% late Friday morning. Strong global growth and increased inflation jitters have spurred the advance in yields.

South African president forced from office
Threatened with a vote of no confidence by his own party, South African president Jacob Zuma was forced to resign on Wednesday amid corruption allegations. Zuma had served as president since 2009. He was replaced by African National Congress leader Cyril Ramaphosa, who will serve as president until elections next year. Financial markets greeted the power shift favorably, with South Africa’s rand firming to its highest level versus the US dollar since 2015.

Eurozone maintained robust growth to close out 2017
The eurozone economy grew at a 2.7% annual rate in the final quarter of 2017, just slightly below the 2.8% pace set in Q3. For the full year, gross domestic product grew by 2.5%, the best performance in a decade. Growth continues to broaden beyond Europe’s core, with Spain and Portugal showing particular strength. Despite faster growth and falling unemployment, inflation remains well below the European Central Bank’s target near 2%. Japan reported an eighth straight quarter of economic growth in Q4, the longest streak in nearly 30 years. However, the pace of growth slowed to an annualized rate of 0.5% in Q4 versus expectations of a 0.9% rise.

IEA: US experiencing oil production boom
The Paris-based International Energy Agency said that a colossal oil boom in the United States could derail plans for OPEC and Russia to try and rebalance global inventories. US production increases could equal global demand growth this year, the agency forecasts. Oil prices recovered a bit of last week’s 10% decline, trading at $61 late Friday morning, up $2 from a week ago.

Kuroda reappointed to head BOJ
Japanese prime minister Shinzo Abe broke with tradition by reappointing Haruhiko Kuroda to a second five-year term as governor of the Bank of Japan when his present term expires in April. The nomination of dovish academic Masazumi Wakatabe as deputy governor is seen as a signal to markets that the BOJ is unlikely to exit its extraordinarily accommodative monetary policy this year, quelling earlier fears that a policy shift might have been in the offing.


With almost 80% of the constituents of the S&P 500 having reported for Q4 '16, the blended earnings growth estimate is 15.3% when compared with the same quarter a year ago. Revenues are expected to increase 8% versus Q4 ’17.





Mon, 19 Feb


Eurogroup finance ministers' meeting

Tue, 20 Feb

United Kingdom

Retail sales

Wed, 21 Feb


Preliminary February purchasing managers’ indices

Wed, 21 Feb

United States

Federal Open Market Committee minutes

Thu, 22 Feb


Q4 gross domestic product

Thu, 22 Feb


European Central Bank meeting

Fri, 23 Feb


Consumer price index



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Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg New; Financial Times; Forbes.com; CNNMoney.com; NBCNews.com. 


This content is directed at investment professionals only. 

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