Trends in risk appetite tended to dominate Sterling during Monday, especially with a lack of front-line data releases. The UK currency rallied briefly ahead of the New York open following Lavrov’s comments but was unable to sustain gains as risk appetite remained fragile. The UK currency, however, was broadly resilient given the vulnerability in risk conditions with support from expectations of further rate hikes. The UK unemployment rate held at 4.1% in the three months to December, in line with expectations. There was a further 108,000 increase in employment for January to a fresh record high while headline average earnings increased to 4.3% from 4.2%. The data maintained expectations of further Bank of England rate increases over the first half of this year, although the impact was limited.
Key Data
7.00 Claimant Count Change (Jan) Act. -31.9K Exp. -35.7K Prev. -51.6k
7.00 ILO Unemployment Rate (3M) (Dec) Act. 4.1% Exp. 4.1% Prev. 4.1%
7.00 Average Earnings Including Bonus (3Mo/Yr) (Dec) Act. 4.3% Exp. 3.9% Prev. 4.2%
There were no significant economic data releases during Monday with trends surrounding Ukraine tensions and overall developments surrounding risk appetite tending to dominate. There was choppy trading across asset classes, although currency moves were relatively contained. The Euro and equity markets rallied following comments by Russian Foreign Minister Lavrov that there was scope for diplomatic progress. The move faded quickly as underlying tensions remained high. G7 financial officials reiterated that they were prepared to impose economic and financial sanctions on Russia if there is any further military aggression. German Chancellor Scholz stated that he expects clear steps from Russia for de-escalation and will meet with Russian President Putin on Tuesday while Ukraine President Zelensky reiterated that the country seeks to join NATO. The Euro drifted down after the European close, especially with concerns over the impact of any further surge in gas prices. ECB President Lagarde stated that inflation is likely to remain high in the near term, but there was some evidence that bottlenecks may be starting to ease.
Key Data
10.00 Gross Domestic Product (QoQ) (Q4) Exp. 0.3% Prev. 0.3%
10.00 Gross Domestic Product (YoY) (Q4) Exp. 4.6% Prev. 4.6%
US Treasuries gradually lost ground in early US trading on Monday with the 10-year yield moving back to 2.00%. There was choppy trading in US equities, but futures were unable to sustain moves into positive territory as risk appetite remained fragile. Kansas City Fed President George stated that the central bank had to be systematic in monetary policy and that it was always preferable to be gradual while she did not back a really fast move to neutral rates. She did add that the Fed would have to debate a 0.50% rate hike at the March meeting if the data demanded it. Richmond Fed President Barkin stated that it was time to normalise policy and underlying demand is strong. From a longer-term view that he was nervous that labour supply will be short in the decade ahead and this would tend to increase inflation rates in the services sector. The latest New York survey recorded a decline in one-year inflation expectations to 6.0% from 5.8% previously, the first decline since late 2020 while 3-year expectations declined to 3.5% from 4.0%.
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