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Schulz: Inflation Validates ECB Purchase Reduction

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Euro-area inflation and growth rise, China looks to protect the yuan, and Fed minutes are coming up. Here are some of the things people in markets are talking about today.

Euro inflation, growth

Inflation in the euro area accelerated 1.1 percent in December. This was the fastest pace since 2013, and ahead of the median economist estimate of 1 percent. While the increase was driven almost entirely by recovering oil prices, the return of price growth is also likely to shift the policy debate at the European Central Bank. The Composite PMI for the currency bloc finished 2016 with its highest reading in 67 months, according to IHS Markit data released this morning. The increase to 54.4 in December was driven in part by the weaker euro, the company said.

Yuan protection

Authorities in China are preparing contingency plans for the yuan and capital outflows, according to people familiar with the matter. With analysts expecting further weakening of the yuan this year, doubt has already been cast on whether moves to support the currency can be effective for anything more than a short time. In the wider Chinese economy another headache for policy makers is emerging as signs that the credit engine that has driven growth there is running out of gas. 

Fed minutes

At 2 p.m. in Washington the minutes of the December Federal Open Market Committee meeting, during which it was decided to raise rates, are scheduled to be released. Investors will be looking for signs of confidence in strong U.S. growth among committee members, as they increased their projections to three rate hikes in 2017 at the December meeting. Former Reserve Bank of India Governor Raghuram Rajan said that Fed tightening will reduce pressure on central banks across the world to maintain accommodative policies.  

Markets mixed

Overnight, the MSCI Asia Pacific Index gained 1.3 percent, with Japan's Topix index closing 2.4 percent higher as the yen slipped against the dollar. In Europe, the Stoxx 600 Index was 0.1 percent lower at 5:15 a.m. ET with the retail sector leading the declines after Next Plc cut profit forecast and predicted difficult trading ahead. S&P 500 futures added 0.2 percent

Harder Brexit 

U.K. Prime Minister Theresa May suffered a blow to her Brexit negotiation strategy when the top British envoy to the European Union resigned yesterday. The loss of the experienced Brussels insider is likely to weaken the U.K.'s position, unless May can find another highly qualified replacement soon. The pound fell yesterday after the resignation was announced, as it is seen as increasing the chances of a so-called 'hard Brexit.'

What we've been reading 

This is what's caught our eye over the last 24 hours.

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