December 12, 2022

Daily Report 12/12/2022

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The latest data recorded a small decline in UK 1-year inflation expectations to 4.8% from 4.9%, but there was an increase in the longer-term expectations components. Although overall confidence in the UK economy remained very fragile, Sterling overall held a firm tone during Friday with a further suspicion that there was a further net covering of long-standing short positions. There was also buying into the London fix which underpinned the currency. CFTC data recorded a decline in short Sterling positions to just above 28,000 in the latest week from over 36,500 the previous week, maintaining the potential for further short covering into the year-end period. Markets expect a split Bank of England rate decision which will contribute to volatile trading before and after the rate call. The latest UK GDP data was slightly stronger than expected with a 0.5% recovery for October after a 0.6% decline the previous month with a stronger than expected reading for construction.

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The Euro was unable to make headway after Friday’s European open and drifted lower with weakness primarily reflecting losses on the cross rather than dollar gains. CFTC data recorded a small net increase in long, non-commercial Euro positions. The Euro settled at the European close with a reluctance to engage in aggressive positioning ahead of key events. Consensus forecasts are for the ECB to increase interest rates by 50 basis this Thursday.

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US producer prices increased 0.3% for November with the year-on-year rate declining to 7.4% from 8.1%, but slightly above consensus forecasts of 7.2%. Underlying prices increased 0.4% compared with expectations of 0.2% with the annual rate at 6.2% from 6.8%. There were some concerns that stronger than expected data indicated persistent inflation pressures. The University of Michigan consumer confidence index recovered to 59.1 for November from 56.8 the previous month and above consensus forecasts of 56.9. There were net increases for the current conditions and expectations components for the month. The 1-year inflation expectations index declined to 4.6% from 4.9% while the 5-year index was unchanged at 3.00% which provided slight relief.

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