The US Commerce Department announced yesterday that US consumer prices had grown by 0.5% in January - ahead of an expected 0.3% rise. Meanwhile European statistics showed the euro zone economy growing at its fastest pace in a decade as the European Central Bank's stimulus measures boosted activity in the region. 

All of this has added to expectations that interest rates will rise sooner - and at a faster pace - than had been expected before - which was one of the factors in last week's dip in markets. But despite traders fears being confirmed, stock prices actually rose yesterday evening - with the Dow Jones closing more than 1% higher.

According to Aidan Donnelly, head of equities at Davy, the market's reaction shows that inflation was not the only thing on traders' minds last week. "The higher wage inflation was probably only one reason for the stock sell-off," he said. "We've seen evidence of - slowly but surely - wage inflation ticking up and there's probably a few other factors out there that could see that increase." This includes some US companies passing on their recent tax cut to employees - be it through higher pay or once-off bonuses. This all leads to extra money in the economy, which could lead to further growth and inflation down the line.


"We also had a substantial move in the currency in the last 12 months and that's also going to lead to slightly more inflation," Mr Donnelly said. "The Federal Reserve are ultimately getting what they want but they just have to ensure that it's in a managed way and inflation doesn't get out of control too quickly." 

The dollar weakened once again against the euro yesterday on the back of the inflation figures - despite the fact that higher interest rates should lead to a strengthening in the currency. "The interest rate differential between Europe and the US has been expanding quite a bit over the past year and yet the currency has been going the other way," Mr Donnelly said. "You would have expected the dollar to be strengthening. There is a very, very large 'long' position out there in euro, probably people own more euros than they've ever done, and I think we'll maybe start seeing some of those positions unwind and that is what will ultimately give the currency a bit of strength."

However Mr Donnelly said the days of the US being the force for any shift in the exchange rate have gone and Europe's economy is no longer the poor relation to its transatlantic equivalent. And in that context some might wonder if the ECB will, like its US peer, begin to move to raise rates sooner than previously expected. But the analyst said that the central bank will not be too worried by growth getting ahead of itself, but will instead be watching the inflation rate to see how it should move next. "Ultimately the ECB have stated for a long time now that inflation is their primary concern," he said. "They will be watching the growth numbers to make sure it doesn't get too frothy but at the same time they do want to see inflation coming back into the system and they're not going to do anything to dampen that."

Meanwhile markets also reacted somewhat to a speech by Britain's foreign minister Boris Johnson, who was starting the process of the government there setting out its Brexit roadmap. Things appeared volatile ahead of his remarks but settled once again as the content of his speech became clear. "There was a little wobble in the currency markets in the run up to it because, as is always the case with Boris, you never know quite what he's going to say," he said. "Then he comes out and doesn't say a whole lot so we go back to the status quo; and I think there was a bit of that case yesterday. There was nothing in it for markets to latch onto in one way or another," he added.

MORNING BRIEFS - Norwegian Air has reported a €30.8m loss as the airline's ambitious expansion plan added significant costs to its business. The company made a profit of around €115m in 2016 but higher fuel, leasing and maintenance costs pushed it into the red last year. The airline also spent more on personnel in order to avoid a pilot shortage during the busy summer period.

*** Confectionary and coffee firm Nestle has reported a dip in profits in 2017 as a slight rise in revenue was outstripped by higher costs. Nestle earned 7.2 billion swiss francs - or €6.2 billion - in the year, which is almost 16% lower than in 2016. Nestle is in the process of shifting its focus away from chocolate and towards healthy foods and last month agreed to sell its US confectionary business to Italy's Ferrero for $2.9 billion. 

*** Oil prices have risen overnight after Saudi Arabia signalled its commitment to cut production until the end of the year at least. OPEC nations and Russia had agreed to cap output in order to deal with a market oversupply, which has helped lift prices well above the lows reached in early 2016.  

*** Irish-headquartered Mainstay Medical has raised €30m through a new share placing as it seeks to launch its back pain product in Germany and the US. Amongst the investors is the State-backed Ireland Strategic Investment Fund, which has invested €10m in this financing round. Mainstay also published its annual results this morning, with the company posting a pre-tax loss of $29.6m in 2017.