Morning Report

February 12, 2024

“Traders will have little time to breathe this week as the economic calendar bursts into life. In particular, a series of top-tier sterling data throughout the week should drive considerable volatility as markets refine their expectations for the Bank of England’s rate cutting path this year. Elsewhere, US CPI and a eurozone ZEW survey will capture attention.”

Tim Hallinan – Trading Director


Main Headlines

EU member states and MEPs reached a preliminary agreement on Saturday to relax the bloc’s strict fiscal rules. The deal allows governments more flexibility to reduce debt and offers incentives for increased public investments in climate initiatives, industrial policies, and security measures. This revision of the Stability and Growth Pact addresses concerns over record-high debt levels resulting from pandemic-related spending.

British employers anticipate smaller pay increases over the next year compared to previous expectations, marking the first decline in nearly four years. According to a survey by the Chartered Institute of Personnel and Development (CIPD), employers project an average basic pay rise of 4% over the next 12 months, down from the previous expectation of 5% in 2023 and late 2022, reflecting reduced tolerance for higher labour costs among employers.


Sterling is set for a fresh injection of volatility with a raft of key data tests that will put the spotlight on the UK and could shake up expectations for the Bank of England’s policy path. The diary kicks off with a speech by Governor Bailey this afternoon, who will likely stick to the script relayed at last month’s meeting where rate cut discussions were deemed premature. Claimant count change and wage growth releases will carry some weight tomorrow morning, given the heightened attention paid by the central bank to labour market tightness and sources of inflationary persistence. Consensus then signals a sticky CPI inflation print on Wednesday in this week’s highlight event, confirming the likelihood that rate cuts will lag the US and the eurozone, followed by GDP on Thursday that could see the UK slip into a technical recession if the expected 0.1% contraction materialises.


The euro successfully halted its six- and three-week run of weekly losses against sterling and the dollar last week amid a lack of data to trigger further selloffs. Italy’s Panetta joined the dovish crowd of policymakers in an increasingly split ECB over the weekend to suggest that interest rate cuts are ‘fast approaching’, although most continue to favour patience at least until April’s wage data. The main event for the eurozone is tomorrow’s ZEW survey where euro area sentiment should ease slightly – presumably as cut expectations have been pared back – but remain around the highest levels in almost a year.


The dollar index eased in the second half of last week from a near three-month high, but ultimately clinched a fourth consecutive weekly gain on Friday on a strong labour market. With the annual CPI revisions leaving the disinflationary picture fundamentally unchanged, the greenback was unphased by the release on Friday. Its current strength will face a key challenge tomorrow, however, when January CPI inflation is expected to fall from 3.4% to 2.9%. The core CPI measure should fall more modestly by 0.1% to 3.8%, still well above the 2% target for the Fed. PPI on Friday will round out the picture and a cross-read from markets should generate a solid estimate for the core PCE data later in the month.


The S&P 500 closed at a fresh record high above 5,000 on Friday amid continued optimism about rate cuts and a soft landing this year. The European indexes are set to edge up at this morning’s open after notching a third weekly gain last week. Asian trading has been very light in the early morning session as markets shut down for the Lunar New Year holidays.

Main Economic Events (All Times CET)

3:20pm: Fed’s Bowman speaks
6:00pm: Fed’s Barkin speaks
7:00pm: BoE Governor Bailey speaks

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