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US consumer prices tumbled by 0.4% in December following a 0.3% decline in November. The figure, the steepest month-on-month contraction since December 2008, left the annual rate at 0.8%, the lowest level seen since October 2009. Reflecting softness across the board, not just in energy prices, core CPI came in unchanged on month, below expectations for an increase of 0.1%, with the annual rate dropping to 1.6% from 1.7% in November to the equal-lowest level since May 2011. While undoubtedly weak, with inflation falling faster than wages, real weekly earnings rose by a further 0.2% following a 0.8% increase in November.

Perhaps reflecting the recent increase in real wages, largely as a result of lower gas prices, US consumer confidence surged in January with the Thomson Reuters/University of Michigan consumer sentiment gauge jumping to 98.2. The figure, the highest level seen since January 2004, was well ahead of the 93.6 level of December and expectations for a further increase to 94.1. The current conditions measure soared to 108.3 from 104.8 in December, the strongest seen since February 2007, while the expectations gauge rose to 91.6 from 86.4, a level last seen in January 2004. Unsurprisingly, the high for the current conditions gauge in February 2007 coincided with a 35% drop in crude oil over a four-month period. It appears that the same factors are at play on this occasion also.

US industrial output slipped unexpectedly in December, falling 0.1% compared to expectations for no change overall. The reading, the equal-largest decline since January, was led by a huge 7.3% contraction in utilities output although, softening the downside miss, mining and manufacturing output logged increases of 2.2% and 0.3% respectively.

Eurozone inflation was confirmed at -0.1% in December, an outcome that left the annual figure unchanged from the preliminary estimate of -0.2%. While no changes there core inflation, that which excludes energy and food items, was revised lower an increase of 0.3%, down from 0.4% in the initial estimate, with the annualised rate dropping to 0.7%, in line with that reported for November.

Following the lead of Standard and Poor’s and Fitch ratings agency Moody’s downgraded Russia’s sovereign rating to Baaa3 overnight, one notch above junk status. Like the other agencies the group left the rating watch negative meaning further near-term downgrades are possible.

A good session for crude oil overnight with WTI and Brent front-month futures leaping by 5.28% and 3.34% respectively. Aided by extreme short positioning, a report from the International Energy Agency that lowered production forecasts for non-OPEC nations was widely cited as the catalyst behind the bounce. Mirroring the move there, albeit driven by different factors, 3-month copper futures also added an additional 2.31% after posting hefty gains on Thursday. Still, for the week, the contract was down 4.99%.

 

Monday’s Session Ahead (AEDT)

Chinese house price data for December will be released on Sunday afternoon.

US markets will be closed for the Martin Luther King Holiday.

The ASX 200 looks set to snap its losing streak with SPI futures pointing to a rise of 76pts on the open.

The AUDUSD closed modestly higher Saturday morning with the pair buying .8224. Despite the recovery across commodity markets and strong labour force data the Aussie gained a paltry 0.29% for the week.

Domestic data releases Monday include the TD-MI inflation gauge and new motor vehicle sales for December. From a regional perspective Japanese industrial production and South Korean PPI will also be released. With the States on holidays the economic calendar is bare with Eurozone current account data for November the only major release of note.

 

Market Map Jan 17 2015

 

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