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Time to stop this focus on inflation

Simon Battensby | Photographer's Choice | Getty Images

Based on last week's minutes of the U.S Federal Reserve's September rate-setting meeting, it seems the Fed's decision to hold off on raising rates last month was not a close call after all.

Minutes from the Federal Open Market Committee's latest meeting show it was hesitant to pull the trigger, as members remained worried about global growth risks. While most of the officials thought it still was a good idea to wait, consensus seems to be that stronger economic data will continue to make a clear case for a lift-off this year.

This, of course, comes off the back of a highly disappointing U.S. September jobs report which instigated an equity rally based on the belief that the Fed would hold off on any rate hike. For the time being, interest rate futures are now first pricing in a US rate hike in May 2016.

For some hint on where rates might be heading, watch for U.S. September retail sales Wednesday, followed by the Michigan consumer sentiment and industrial production on Friday.

In the UK, where interest rate futures now are pricing in the first UK rate hike to happen in December of 2016, keep an eye on Tuesday's inflation data, followed by labor market data on Wednesday. Europe's largest economy, Germany, also presents inflation data today alongside the ZEW economic sentiment data.

However, an increasing number of analysts analysts are arguing that the central banks need to stop focusing on inflation as a reason to keep cutting rates and/or introduce more stimulus.

Teis Knuthsen, chief investment officer of the trading platform Saxo Bank thinks the central banks are wrong in their inflation analysis.

He told me that monetary policy can't be expected to contribute to a rise in inflation, as disinflation/deflation primarily is driven by changes on the economy's supply side -- such as falling inflation prices and a shift to a digital economy. Knuthsen believes that while the Fed currently is on hold, it is likely the European Central Bank will try to prevent a rise in the euro.

Knuthsen sees the dollar rising over the next few years, taking the euro/dollar below parity. But, he says "without the Fed in the driving seat, it would be a surprise if the euro/dollar corrects meaningfully higher (perhaps 1.25)."

With this week seeing the official start to the US earnings season, focus may become more driven by companies.

Tuesday sees JPMorgan Chase kicking off third-quarter results along with Johnson & Johnson and Intel. More earnings out of Wall Street on Wednesday with Bank of America, Wells Fargo and BlackRock all on the list during the trading session, while Netflix reports after the bell. More banking results on Thursday when we get numbers out of Goldman Sachs and Citigroup. UnitedHealth and Philip Morris are also on the agenda that day. Finally, on Friday, we round off the week with General Electric and Honeywell.

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