The CBI industrial orders index was unchanged at 24 for January and slightly above market expectations. Companies reported that shortages of skilled labour were hampering production plans with the situation at the most serious since 1973. Cost pressures remained very strong with the strongest increase in domestic prices since 1980 and companies expect further strong increases over the next few months, reinforcing inflation concerns within the Bank of England. Markets were continuing to monitor political developments as the police announced that there would be an investigation into allegations surrounding social events at Downing Street. Nevertheless, overall risk conditions continued to dominate market trading. Political speculation will be elevated on Wednesday, but overall risk conditions are likely to have a larger impact.
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The German IFO business confidence index strengthened to 95.7 for January from 94.8 the previous month confounding expectations of a slight reduction on the month. There was a significant retreat in the current conditions component which was offset by a notable improvement in the expectations component. The IFO stated that the New Year started with a glimmer of hope, but it was too early to talk about a turnaround in the economic situation. The IFO did note that there was a slight easing of supply shortages in the industrial sector and delivery bottlenecks in retail had also eased. ECB chief economist Lane stated that it was clear that the Omicron impact on the economy is only for a few weeks. He was still confident that inflation will fall quite a bit later this year. The Euro was unable to draw support from the IFO data and lost ground amid expectations of negative yield spreads and unease surrounding Ukraine.
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The US Philadelphia Fed non-manufacturing index dipped sharply to -16.2 for January from 27.3 the previous month with a sharp slowdown in new orders growth. The sharp dip in likely to be related to the Omicron variant and companies remained optimistic over the six-month outlook. The labour market remained tight and pricing pressures increased on the month with a strong increase in the prices paid index. The Case Shiller house-price index recorded an 18.3% increase in the year to November from 18.4% the previous month. Volatility eased on Wednesday with caution ahead of the Federal Reserve policy decision. Markets expect the Fed will signal a rate hike for March with the rhetoric watched very closely.
Key Data
19.00 Fed Interest Rate Decision Curr. 0.25% Exp. 0.25%
19.00 Fed Monetary Policy Statement
19.30 FOMC Press Conference