January 17, 2023

Daily Report 17/01/2023

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Sterling lost ground after Monday’s European open with a retreat. Overall confidence in the UK outlook remained weak with expectations that economic activity will be notably weak during the first quarter. Overall risk appetite held steady which provided some Sterling protection and it settled against the US currency. Bank of England Governor Bailey stated that the market risk premium from September’s Truss budget has disappeared for the time being at least and that the emergency bond-buying programme has been wound up with a net profit which will benefit the Treasury. As far as the economy is concerned, Bailey expects that inflation will fall, but stated that the labour shortage is a major risk to the central case for inflation falling. UK labour-market data recorded an unchanged unemployment rate of 3.7% and a further increase in monthly employment. Headline and underlying earnings increased 6.4% in the three months to November and above expectations of 6.2% which will maintain speculation that underlying inflation will increase. The latest inflation data will be released at Wednesday’s European open with expectations of a small reduction in the annual rate to 10.5% from 10.7%.

Key Data 

7.00 Claimant Count Change Act 19.7K Exp. 25.2k Prev. 30.5K
7.00 ILO Unemployment Rate Act 3.7% Exp. 3.7% Prev. 3.7%

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ECB council member Rehn stated that he sees significant rate increases at the next meetings, but there was no further commentary on the potential magnitude of the rate hikes. The Euro was unable to make headway after the European open and drifted lower against the dollar. After finding support the Euro settled at the European close. There was little change on Tuesday with the Euro holding at similar levels to yesterday evening.

Key Data

7.00 German Harmonised Index of Consumer Prices (YoY) (Dec) Act. 9.6% Exp. 9.6% Prev. 9.6%

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Overall trading conditions were lacklustre, especially with a US market holiday during the day. There were no data releases or comments from Fed speakers. Underlying dollar sentiment remained weak given expectations that the Federal Reserve would switch to a less aggressive monetary policy amid expectations that inflation will continue to decline, especially with a retreat in energy prices. Markets will monitor comments from Federal Reserve officials on Tuesday with trends in risk appetite also important for market direction.

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