January 09, 2023

Daily Report 09/01/2023

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The UK PMI construction index declined further to a 48.8 for December from 50.4 previously, below consensus forecasts of 49.6 and the weakest reading since May 2020. New orders contracted and employment declined for the first time since January 2021 while there was a further net easing of cost pressures. Companies were pessimistic over the outlook with only the sixth negative reading on record. Sterling remained vulnerable after the data. There was a sharp reversal after the US jobs data with Sterling surging back against the dollar. There were further concerns surrounding the UK outlook while Bank of England MPC member Mann expressed concerns over inflation trends. Risk trends remained dominant on Monday with optimism remaining dominant.

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The headline Euro-Zone CPI inflation rate declined sharply to 9.2% for December from 10.1% the previous month and below consensus forecasts of 9.7%. There was, however, an increase in the core rate to 5.2% from 5.0% and above expectations of 5.0% which will cause concern within the ECB. There was a net recovery in business confidence for the month with business and consumer confidence strengthening to 95.8 for December from 94.0 previously.

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US non-farm payrolls increased 223,000 for December and slightly above consensus forecasts of 200,000 while the November increase was revised slightly lower to 256,000 from the original estimate of 256,000. Manufacturing jobs increased 8,000 on the month and there were gains in most categories, although there was a dip in demand for temporary help. The increase in government jobs was also held to 3,000 on the month. The unemployment rate dipped to 3.5% from 3.6% and below expectations of 3.7%. There was a small increase in the participation rate while the household survey recorded a surge of over 700,000 in the number of people recorded as employed. Average hourly earnings increased 0.3% with the annual increase slowing to 4.6% from 4.8%, the lowest reading since August 2021 and well below expectations of 5.0%. Markets tended to focus on the wages component which increased hopes that underlying inflation pressures would moderate and allow a less aggressive Fed policy stance. The dollar edged lower in an immediate response to the data and selling pressure intensified later in the session after the much weaker than expected business confidence data. 

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