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Clearly below expectations, both core and headline inflation disappoint investors.

18 April 2017

Not much to say this week on the macroeconomic side.

Inflation numbers close to expectation in the UK, strong ZEW (economic sentiment indicator) in Germany and Michigan sentiment (consumer trust indicator) still rising in the US. The most important number of the week is the US inflation with both PPI and CPI well below expectations. Core CPI is now at 2% and headline CPI at 2.4%. In a nutsheel, the macro picture is still positive but positive base effects on inflation are fading, little by little. We will see next month if it was just one miss (Easter base effect?) or more significant.

It is also the beginning of the earnings season in the US, with financials being the first to report, with good numbers. As usual, this earnings season should be above expectations and should support the market in the next 2-3 weeks.

But those news were clearly not what people were talking about this week. Geopolitics came back with Mr Trump still doing the exact opposite of what he said before being elected. A summary of this week:

  • He has decided to send an “armada” close to North Korea, to bomb Syria and to launch the biggest non-nuclear missile in Afghanistan, which is the contrary of the “non-interventionism” he was asking for.
  • Nato is no longer obsolete.
  • China is not manipulating its currency at all.
  • He has a lot of respect for Mrs Yellen.

It leads to some degree of confusion in the financial markets: Rates are down, yen is up and equities are a little bit lower. And obviously, French election is still one of the main risk coming in the next 3 weeks. German rates are back to their annual lows and Us rates have broken their 2.30/2.60 range trading now at 2.23%.

Low volume next week due to Easter.

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