December 08, 2022

Daily Report 08/12/2022

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There were no major UK developments during Wednesday, although markets were monitoring latest developments surrounding labour disputes with further announcements of strikes during the Christmas and new-year period. Overall confidence in UK fundamentals remained weak, but there was a reluctance to sell the currency aggressively, especially with speculation over a covering of short positions into the year-end period. Markets will be looking ahead to next week’s policy decision from the Bank of England with expectations of a further increase of 50 basis points According to the latest RICS data 25% of surveyors reported that UK house prices were declining from 2% previously and the weakest reading since June 2020, reinforcing expectations of a sharp slowdown in the housing sector. There was still a notable reluctance to sell the UK currency with buying on dips.

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German industrial production declined 0.1% for October compared with expectations of a 0.6% decline and after a revised 1.1% increase for September. Euro-Zone GDP for the third quarter of 2022 was revised slightly higher to 0.3% from the flash estimate of 0.2% with year-on-year growth of 2.3% from 2.1%, although the annual growth rate still halved from the second quarter. The data overall helped underpin the narrative of German and Euro-Zone industrial resilience which also provided an element of currency support.

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12.00 Christine Lagarde Speech

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Short-term attention will turn towards the latest round of US inflation data with the producer prices data due on Friday ahead of the consumer prices release next Tuesday. The latest data suggests that upward pressure on rents is easing which will have an important impact in curbing overall inflation pressures. US non-farm productivity was revised higher to 0.8% for the third quarter of 2022 from 0.6% with the increase in unit labour costs cut to 2.4% from the first estimate of 3.1% and 3.5% for the second quarter. The slower rate of labour cost increases will offer some reassurance to the Federal Reserve. Treasures secured limited gains following the data with the 10-year yield retreating to around 3.55% and yields declined further later in the session.

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