December 01, 2022

Daily Report 01/12/2022

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In comments on Wednesday, Bank of England chief economist Pill stated that further rate hikes were likely, but the base case was that interest rates would not need to increase to 5.25% and inflation was likely to decline sharply over the second half of 2023. Sterling posted solid gains following Powell’s comments with stronger risk conditions propelling the UK currency higher on Thursday. Global risk conditions are again likely to dominate in the short term, although comments from Bank of England officials will be monitored closely.

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German unemployment increased 17,000 for November and a slightly larger increase than expected while the unemployment rate edged higher. The headline Euro-Zone CPI inflation rate declined to 10.0% for November from 10.6% previously and below consensus forecasts of 10.4%. The underlying rate held at 5.0% which was in line with market expectations. The Euro edged lower after the data amid expectations that the ECB could take a slightly less hawkish stance.

Key Data 

7.00 German Retail Sales (YoY) (Oct) Act. -5% Exp. -2.8% Prev. -0.9%

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The Chicago PMI manufacturing index declined sharply to 37.2 for November from 45.2 previously which was below consensus forecasts of 47.0 and the lowest reading since June 2020. Orders declined sharply on the month, reinforcing reservations over the outlook. Fed Chair Powell stated that it makes sense to moderate the pace of rate hikes and that this could be as soon as the December meeting. He did add that it was likely that the terminal rate would be somewhat higher than expected in September, but this shift had already been priced in. According to Powell, the October inflation data was a welcome surprise, but it will require much more evidence to give reassurance. He added that a slowing of the economy is a good way to balance risks and restrictive policy will be needed for a considerable period. Powell stated that he did not want to over-tighten, but cutting rates is not something he intends to do anytime soon. The rhetoric overall was seen by traders as dovish with no move to push-back against market expectations. Following Powell’s comments, markets were more confident of a 50 basis-point hike this month and expectations of the terminal rate edged lower to just above 5.00%.

Key Data 

15.00 ISM Manufacturing PMI (Nov) Exp. 49.8 Prev. 50.2