January 25, 2023

Daily Report 25/01/2023

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Sterling lost ground in early Europe on Tuesday with a negative reaction to the much larger than expected government borrowing requirement. The UK manufacturing PMI index improved to a 4-month high of 46.7 for January from 45.3 the previous month and above expectations of 45.4, but there was a dip in the services index to a 24-month low of 48.0 from 49.9 and below expectations of 49.6. Services-sector companies were hurt by higher interest rates and weaker consumer confidence, but there was a significant improvement in business expectations amid hopes for a stronger global economy. There was a net easing of cost pressures and prices increased at the slowest rate since August 2021 The CBI industrial orders index dipped to -17 for January from -6 previously and notably worse than expected. Cost pressures remained strong, but there was a slowdown in the rate of price increases.

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The French manufacturing PMI index returned to expansion for January, but the services sector was little changed and remained in contraction. The German data pointed in the opposite direction with the services-sector data in expansion while manufacturing remained weak and in recession. The Euro-Zone PMI manufacturing index improved to a 5-month high of 48.8 for January from 47.8 and above consensus forecasts of 48.5 while the services-sector index improved to a 6-month high of 50.7 from 49.8 and above expectations of 50.2. There was a strong recovery in business confidence to the highest level since May with net gains for employment. Although cost pressures eased further, selling prices increased at a slightly faster rate on the month. ECB council member Panetta stated that the bank should not pre-commit beyond February, maintaining an important element of uncertainty.

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The US manufacturing PMI index edged higher to 46.8 for January from 46.2 and slightly above consensus forecasts while the services-sector index also improved to a 3-month high of 46.6 from 44.7 and above expectations of 45.0. Overall business expectations increased to a 4-month high with a marginal increase in employment. Cost pressures increased slightly on the month for the first time in seven months, but output prices increased at the joint-slowest rate since October 2020.

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