December 14, 2022

“Based on yesterday’s inflation data, with US CPI slowing to 7.1% from 7.7% in October, the Federal Reserve is expected to slow the pace at which it tightens monetary policy and raise its benchmark interest rate by 50bps later today. However, it signals an intention to continue squeezing the world’s biggest economy next year.”

Sam Cornford, Partner – Head of Trading

Main Headlines

US consumer price inflation eased more than expected in November to its lowest level in almost a year, bolstering the Fed’s plans to slow the pace of interest rate rises this week. The rate of increase in the consumer price index fell to 7.1 per cent last month, lower than the 7.3 per cent forecast by economists and down from 7.7 per cent in October. Overall CPI rose 0.1 per cent from the previous month. US stocks initially soared after the release, as investors bet that the central bank might not have to squeeze the economy as aggressively as feared to bring inflation under control.

UK inflation dipped to 10.7 per cent in November as an easing in the rise in petrol prices helped to lower the rate from a 41-year high of 11.1 per cent last month. The figure was better than an expected 10.9 per cent and economists said the annual inflation rate had now probably passed its peak, with the sharp price rises of the past 18 months coming to an end. The fall in the rate will not ease the cost of living crisis, however, because the level of prices has not dropped and the decline in inflation instead reflects some of the increases in prices a year earlier dropping out of the annual calculation.

GBP

Sterling is stronger against the dollar and weaker against euro this morning. A wave of industrial action gripping the UK will intensify today as Royal Mail workers go on strike alongside rail industry staff over pay and employment terms. Consumers have been warned to prepare for late deliveries of Christmas presents amid action by postal workers, while commuters are struggling with travel misery owing to strikes by rail employees. The UK government has proposed banning the installation of traditional gas boilers in homes from 2026 and replacing them with “hydrogen ready” heating systems.

EUR

Euro is well bid against most major currencies overnight. The ECB is due to outline plans to shrink its €5tn bond portfolio tomorrow, alongside an increase in interest rates of at least 0.5 percentage points to 2 per cent, as it steps up its efforts to tame soaring inflation by tightening credit conditions. The central bank’s plan to cut its support for sovereign bond markets comes as eurozone governments are set to issue more debt next year to cover the cost of shielding households and businesses from the impact of high energy prices this year.

USD

The dollar is weaker than most major currencies in the early morning trade. The Biden administration plans to place Chinese chip maker Yangtze Memory Technologies and 35 other Chinese firms on a trade blacklist that would prevent them from buying certain American components. Apple is preparing to allow alternative app stores on its iPhones and iPads, part of a sweeping overhaul aimed at complying with strict EU requirements coming in 2024. Customers may ultimately be able to download third-party software to their devices without using the company’s App Store.

Markets

European stocks opened lower and US index futures were muted as investors debated whether inflation had eased enough to encourage the Federal Reserve to slow monetary tightening. The Stoxx Europe 600 Index dropped for the second time in three days. Contracts on the S&P 500 and Nasdaq 100 index were little changed after Tuesday’s rally in US stocks on the back of a fifth month of decline in consumer-price growth. Treasuries rallied for a second day, while the dollar slipped. Gilts led European bonds higher after UK inflation slowed more than forecast in November.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: UK Nov. CPI
8:00 a.m.: Sweden Nov. CPI
9:00 a.m.: Spain Nov. CPI
10:30 a.m.: UK Oct. House Price Index
11:00 a.m.: Euro-Area Oct. Industrial Production
1:00 p.m.: US MBA Mortgage Applications
2:30 p.m.: US Nov. Import Price Index
8:00 p.m.: Fed rate decision
8:30 p.m.: Fed’s Powell speaks
US hosts summit of African leaders

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