January 18, 2023

Daily Report 18/01/2023

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Sterling was able to post limited gains after the latest labour-market data with expectations that a stronger rate of increase in average earnings would fuel Bank of England concerns that a tight labour market will make it more difficult to bring inflation under control. Solid risk conditions also helped underpin the UK currency. The headline UK inflation rate declined to 10.5% for December from 10.7% which was in line expectations while the core rate was unchanged at 6.3%. Concerns over the risk of sticky inflation underpinned Sterling, especially with speculation over a less dovish ECB stance. Risk appetite held steady and Sterling posted fresh 4-week highs as global conditions remained broadly favourable for the Pound.

Key Data

7.00 Consumer Price Index (YoY) (Dec) Act. 10.35% Exp. 10.6% Prev. 10.7%

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The German ZEW economic conditions index improved strongly to 16.9 for January from -23.3 the previous month and substantially above consensus forecasts of -15.0. There was, however, only a small improvement in the current conditions component to -58.6 from -61.4 the previous month. After the Wall Street open, there were reports that the ECB was considering a slowdown in the potential pace and extent of interest rate increases. According to sources, the bank is still expecting to increase rates by a further 50 basis points at the February meeting, but is then considering a smaller increase at the March meeting.

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The US New York Empire manufacturing index slumped to -32.9 for January from -11.2 previously. This was substantially below consensus forecasts of -8.7, the weakest reading since mid-2020 and the fifth lowest reading on record. New orders and production also contracted sharply on the month with a smaller decline in unfilled orders. There was still a small employment increase while there was a notable easing of inflation pressures with a smaller increase in prices paid. Companies were slightly more optimistic over the outlook while expecting cost pressures to ease further. The dollar lost some ground after the data amid concerns over the US outlook.

Key Data 

13.30 Retail Sales (MoM) (Dec) Exp. -0.8% Prev. -0.6%
13.30 Retail Sales Control Group (Dec) Exp. -0.2% Prev. -0.2%