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ISEQ steady- Inflation remains subdued

Friday, February 21 09:22:20

The ISEQ is steady this morning at 4,993, up 7 points as markets are fairly positive following Wall Street's good finish based on US manufacturing data.

Irish inflation remains subdued according to Davy Stockbrokers:

Stock indices made small gains on Thursday. The Euro Stoxx 50 was up 0.03pc and the S and P 500 up 0.6pc. Investors were encouraged by a rise in the US manufacturing PMI to 56.7, above expectations. Stock index futures suggest that European indices should catch up this morning, pointing to gains of around 0.3pc at the open. US 10-yields gained close to 6bps through the day, and are currently trading at 2.76pc.

The dollar fell from above $1.375 on Wednesday, now at $1.371. In contrast to the US data, European PMIs for February were slightly disappointing. The composite PMI was 52.7, down from 53.1 in January. The small dip reflected poor numbers from France, with both manufacturing and services PMIs suggesting that the economy is still in recession at 48.5 and 46.9 respectively. The German PMI data suggest that activity is expanding at a robust pace at 54.7 and 55.4 respectively for manufacturing and services.

UK retail sales data are expected to show volumes down 1pc in January, after a hefty 2.6pc rise in December, and up 5.0pc year-on-year. However, there have been clear winners and losers within the UK retail sector. Well known supermarket chains like Morrison, Sainsbury and Tesco have seen their share prices fall in 2014.

Aggregate food sales have been weak, and competition within the sector has been accentuated by discounters like Aldi and Lidl. In contrast, clothing retailers such as Debenhams, Next and Marks & Spencer have seen their share prices gain in 2014. So although today's retail sales data are likely to show another strong 5pc annual growth rate in January, not all consumer-facing companies have benefitted from improving demand.

Yesterday, Bank of England MPC member Martin Weale said he expects a first rate rise in the spring of 2015. This is the second occasion the bank's new 'forward guidance' has been undermined, following last week's intervention from Chief Economist Spencer Dale that the interest rate curve, pricing in rate rises in early 2015, was plausible.

Irish CPI inflation data showed prices up just 0.2pc on the year. However, the headline CPI inflation rate has been pushed down by ECB rates and falling energy prices. Mortgage interest costs were down 10.4pc on the year. Goods price inflation was -1.8pc, with food prices down -1.7pc and clothing -2.3pc. But services prices (excluding mortgage interest costs) rose by a robust 3pc on the year, with education (+4.6pc) and restaurants and hotels (+1.9pc) contributing.

The overall picture is that weak headline CPI inflation largely reflects falling import prices, but with domestically generated inflation slowly emerging according to Davy Stockbrokers.