Datawatch is the Name of the Game

A market is in balance when news is the driver and reports on UK and US inflation point to a healthy state. The pound was the laggard Tuesday while the Swiss franc led the way. Australian housing could be in focus later.

Inflation is probably the biggest long-term question mark in the global economy. In equal numbers there are market participants looking for hyperinflation or long-term deflation and everything in between. It will be months or years before an answer begins to materialize but central banks are watching closer as the QE experiment moves into a second phase.

UK CPI was flat in February and a touch softer than expected while US CPI rose for the first time in months and was a touch stronger than the consensus. The differences in both reports compared to the consensus was a rounding error but the reaction in markets was massive.

Cable dropped 60 pips on the UK CPI data and then fell another 60 on the US numbers. Both data points added some confusion and caveats but the headline was what mattered in the end. Specifically, US weekly earnings were down 0.1% in the month and that caused a momentary plunge in the US dollar but it quickly reversed.

Other data points on the day had less of an impact. New home sales surged to 539K vs 464K expected but it was entirely due to a 153% jump in the Northeast that was almost certainly a seasonal skew from a cold winter a year earlier. Numbers on manufacturing also differed as the Markit PMI rose to 55.3 vs 54.6 expected. The flipside, the Richmond Fed was -8 compared to +3 exp.

The US dollar recovery is a good start but we will be watching closely to see how it reacts to incoming data, especially the durable goods report on Wednesday. 

In the near term, the focus is on Australia later with skilled job vacancies data due at 0000 GMT. It's rarely a market mover but the data focus could give it an added lift. The release more likely to move the move the market is the RBA financial stability review at 0030 GMT. Headlines on the housing bubble could cause a scare.