Daily Report 21/12/2021

The UK CBI industrial orders index edged lower to 24 for December from 26 the previous month, but this was above consensus forecasts of 20 and close to record highs with the index substantially above historic averages. Exports orders also slowed slightly while companies reported a further solid increase in output. Cost pressures remained strong for the month with only a slight slowdown in the rate of increase in prices. There were further concerns over the near-term spending outlook with reports of a sharp decline in shopper numbers in London over the weekend. Sterling dipped but the ability to avoid fresh 2021 lows helped trigger a limited recovery. The UK currency was, however, unable to make significant headway, especially with global equity markets moving lower again. Markets were continuing to monitor coronavirus developments and the potential for fresh regulations to help combat the Omicron variant. The UK government did not announce fresh restrictions on Monday, but unease over the risks remained high. The latest Lloyds Bank business confidence data held steady for December and wider risk appetite stabilised on Tuesday which lessened the threat of further selling.

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The Euro-zone current account surplus was unchanged at EUR18bn for October while the 12-month surplus increased to EUR311bn from EUR186bn the previous year, although there was still a net deficit on the financial account which would limit underlying support. In its latest monthly report, the Bundesbank stated that the German economy may contract this quarter as a resurgence in coronavirus infections force fresh curbs on activity. It also expects that inflation will remain above 4.0% for the next few months. There were further concerns over developments surrounding Euro-zone energy prices as upward pressure continued. The sharp increase in costs will undermine activity as well as putting further upward pressure on inflation rates. This combination will make it even more difficult for the ECB to set monetary policy.

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There were no significant US data releases during the day and no further commentary from Federal Reserve officials with markets also monitoring US Omicron developments. US futures edged lower ahead of the New York open, but there was only a slight increase in yields and Treasuries rallied again as equities moved lower again after the Wall Street open. The 10-year yield held below 1.40% which limited US currency support.

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