Sanctions on Russia and Iran by the US, alongside cold weather in the Northern Hemisphere saw oil prices rise in January. President Trump used his address at the World Economic Forum to urge OPEC members to “bring down the cost of oil” which delivered some retracement in pricing. All in all, the oil price increased by 2,8% over the month.

US inflation data painted a mixed picture. US headline inflation rose for a third consecutive month to 2,9% y-o-y in December, broadly in line with expectations, while core inflation eased to 3,2%. Producer prices printed at 3,3% from 3,0% the prior month, coming in below expectations. Data for the US personal consumption expenditure price index (PCE) was recorded at 2,6%, the highest in seven months. The annual rate for core PCE (the Fed’s preferred measure of inflation) remained steady at 2,8%.

The US Federal Reserve (US Fed) kept policy rates on hold, in line with market expectations. Federal Reserve Chair, Jerome Powell remarked on somewhat elevated levels of inflation, while removing reference to progress on meeting the 2% inflation target. With several references to policy uncertainty, the US Fed Chair indicated the potential for an extended pause and that the committee “does not need to be in a hurry to adjust our policy stance”. The US 10-year bond yield reached highs of 4,8% over the month but settled at 4,5%.

Inflation for the Euro area increased to 2,5% y-o-y in January from 2,4% the previous month, driven by rising energy costs. The European Central Bank (ECB) cut interest rates by 0,25%, warning of “headwinds” for the region which has been mired in weak economic growth. UK bond yields surged to levels last seen during the Russian financial crisis, as the implication of higher borrowing costs caused even higher bond yields. UK inflation printed at 2,5% in December from 2,6% the previous month, calming the domestic bond market. Widely expected, the Bank of Japan (BoJ) bucked the trend with a 25bps interest rate hike. Chinese inflation printed at 0,1% over the year from 0,2% the prior month, suggesting stimulus has yet to reap any benefits against a weak economic backdrop and deflationary pressures.

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