The UK PMI construction index declined to 54.3 for December from 55.5 previously, but slightly above market expectations of 54.0 and there was a stronger increase in new orders. Although there was further upward pressure on costs, the overall rate of inflation slowed to the lowest rate since March. Sterling held a firm overall tone on yield grounds with increased speculation that the Bank of England would decide on another interest rate increase at the February policy meeting. CFTC data recorded a sharp decline in short Sterling positions to near 39,000 in the latest week from over 50,000 previously, although there is still scope for a covering of shorts if the spot rate continues to make headway. The latest surveys from Deloitte and Make UK both indicated that investment would strengthen in 2022 which helped underpin sentiment to some extent.
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The headline Euro-zone CPI inflation rate increased to a fresh record high of 5.0% from 4.9% and above consensus forecasts of 4.7% while the core rate held at 2.6% and slightly above expectations of 2.5%. December Euro-zone industrial sentiment improved, but there was a sharp dip in services as covid restrictions were tightened. Markets still expect that the ECB will maintain a dovish policy stance, but there will be increased pressure for the bank to tackle inflation pressures. In comments on Sunday, ECB member Schnabel stated that the central bank may have to act if energy price rises are more persistent.
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US non-farm payrolls increased 199,000 for December compared with consensus forecasts of 400,000, although the November estimate was revised up to 249,000 from the original estimate of 210,000. There was an increase in manufacturing jobs of 26,000 on the month while there was a 22,000 gain for construction jobs. There was a small decline in retail jobs for the month, but with an increase in jobs in the leisure and hospitality sector. Government jobs declined a further 12,000 on the month. The unemployment rate declined to 3.9% from 4.2% and the lowest rate since February 2020 as the household survey recorded an increase in the number of employed of just over 650,000 for the month. The household data continued to suggest that supply-side issues were curbing underlying growth in payrolls. Average earnings increased 0.6% for the month compared with market expectations of 0.4%, although the annual increase slowed to 4.7% from 5.1% as labour-force distortions eased. The wages data maintained market concerns over underlying inflation trends and the risk of wage settlements drifting higher. Futures markets indicated that the chances of a March rate hike had increased to around 90% from 80% ahead of the data.
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