Daily Report 17/01/2022

UK Foreign Secretary Truss stated that there had been good talks with EU Commission vice-president Sefcovic and commented that the two sides would intensify talks to resolve post-Brexit issues. There was a slightly more cautious tone from Sefcovic who commented that some issues needed to be taken off the table, although there was also a survey from Northern Ireland which suggested that companies were making headway. Markets were continuing to monitor UK political developments during the day. Sterling was unable to make further headway against the dollar during Friday. CFTC data recorded a further net decline in the short Sterling position to near 29,000 contracts from 39,000 previously as short covering continued. Immediate political tensions eased slightly, but Prime Minister Johnson remained under pressure.

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On Friday, the German economy Ministry stated that ongoing supply bottlenecks are likely to persist for a while, but also insisted that the upward trend in inflation would weaken noticeably from January. ECB President Lagarde stated that monetary accommodation is still needed for inflation to settle around 2% over the medium term. The Euro failed to make further headway as commodity currencies retreated and the single currency dipped to lows. CFTC data recorded a switch to a small net long Euro position in the latest week. On Sunday, ECB council member Schnabel stated that a premature rate hike could choke an economic recovery.

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US retail sales declined 1.9% for December following a revised 0.2% increase the previous month and much weaker than consensus forecasts of a 0.1% decline. Underlying sales declined 2.3% for the month while the control group recorded a 3.1% decline following a revised 0.5% retreat in December. The University of Michigan consumer confidence index retreated to 68.8 for January from 70.6 previously and slightly below consensus forecasts to 70.0. There was a net decline in the current conditions index and sharper retreat in the expectations index. The one-year inflation expectations edged higher to 4.9% from 4.8% with an increase in the 5-year index to 4.9% from 4.8% as markets continued to focus on inflation.

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