Daily Report 08/02/2022

Halifax reported a 0.3% increase in house prices for January, the slowest rate of increase since June 2021, although the year-on-year rate was unchanged at 9.7%. There was little impact from the data with markets expecting a gradual easing of house-price inflation due to pressure on household spending this year. There were further doubts whether the Bank of England would be in a position to tighten monetary policy aggressively given the squeeze on incomes with the bank hoping that a short cycle of rate hikes would curb the threat of a wage-price spiral and prevent a sustained increase in interest rates. There was little impact on the UK currency from global risk conditions with little net change in equities while there was no market impact from ongoing political developments. BRC data recorded an 8.1% increase in like-for-like retail sales for January from 0.6% previously as sales were hit by lockdowns last year. Barclaycard reported a 7.4% increase in consumer spending since January 2020, although this was the weakest figure since April 2021.

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German industrial production declined 0.3% for December following a 0.3% increase the previous month. The Euro-zone Sentix investor confidence index strengthened to 16.6 for February from 14.9 previously and above consensus forecasts of 15.2. Market conditions were relatively subdued during Monday which is often the case on the Monday following a US jobs report with markets assessing the outlook for global interest rates. ECB President Lagarde stated that inflation would remain high in the short term, but still considered that price pressures would subside before higher inflation becomes entrenched, especially with no evidence of excess demand. Nevertheless, she also commented that the central bank needed to maintain flexibility and optionality in the conduct of monetary policy more than ever. The bank will have more options once the emergency bond-buying comes to an end in March. She also noted that risks to the economic outlook are balanced over the medium term. The overall rhetoric was slightly less hawkish than expected following last week’s council meeting and the Euro edged lower, although overall ranges were relatively narrow.

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The US employment trends index edged lower to 117.6 from a revised 117.9 the previous month, but there was no significant impact from the data with confidence in the labour market and the immediate focus turning to the latest CPI inflation data due on Thursday. There was choppy trading in US Treasuries during Monday, although yields overall edged higher as markets continued to monitor the potential for global monetary tightening.

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