January 20, 2023

Daily Report 20/01/2023

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Bank of England Governor Bailey stated that the bank is not endorsing a 4.50% peak in interest rates, but the market expectations were out of line in November and that was not the case in December. Bailey was also more optimistic over the prospects of inflation falling this year with the potential for inflation to fall quite rapidly from late spring. The recession was expected to be relatively shallow by historic standards. The overall rhetoric was relatively optimistic.

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ECB Council Member Knot stated that the ECB s planning to hike rates by 50 basis points multiple times and won’t stop after a single hike with no sign that underlying inflation is abating. Bank President Lagarde stated that inflation is way too high and that the bank will stay the course with rate hikes. Minutes from December’s meeting stated that a large number of policymakers had initially expressed a preference for a 75 basis-point rate hike. A broad majority eventually backed the decision to raise rates by 50 basis points, but with the promise of a hawkish statement and a further rate hikes. The Euro did rally to some extent on hawkish minutes and rhetoric, but struggled to hold the gains as the dollar attempted to fight back.

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The Philadelphia Fed manufacturing index remained in contraction territory for January with a reading of -8.9, but this was above December’s figure of -13.7 and slightly stronger than consensus forecasts of -11.0. There was net growth in shipments, but new orders contracted at a faster pace on the month. There was a net increase in employment while inflation evidence was mixed as costs increased at a notably slower rate, but prices received increased at a faster pace. Companies were slightly more optimistic over the outlook, but still notably cautious while pricing pressures are forecast to ease.

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