February 14, 2023

“Economists now suspect the Federal Reserve will raise interest rates at least twice more in the coming months. This is predominantly due to the stronger than expected US jobs data earlier this month, which reinforced the Fed’s higher-for-longer mantra. Today’s CPI reading from the US will give further indication on potential hikes. ”

Tim Hallinan – Trading Director

Main Headlines

Consumer prices are expected to have increased at a slower rate in the US economy last month, as the Federal Reserve seeks proof that its interest rate hikes are effective at keeping inflation in check. The consumer price index, which will be released on Tuesday, is predicted to show a year-over-year rise of 6.2% in January, down slightly from the 6.5% increase in December. Excluding energy and food prices, the “core” CPI measure is projected to have risen at an annual rate of 5.5% in January, also slightly lower than the 5.7% increase in the previous month.

Official statistics show that wage growth in the UK accelerated more than expected in the final quarter of 2022, which will be closely monitored by the Bank of England before its next interest rate decision. Growth in average regular pay, excluding bonuses, rose to 6.7% in the three months to December 2022, up from 6.4% in the previous three months to November. This exceeded the 6.5% forecast by economists and was the strongest growth rate for regular pay outside the pandemic period, according to the Office for National Statistics.

GBP

Sterling is well bid against most major currencies this morning. A Bank of England interest rate setter has claimed that Brexit has led to a £29bn reduction in business investment and worsened the slowdown in UK productivity. The UK Treasury is facing mounting pressure to identify local economic regeneration projects that will be postponed as a result of the levelling-up department’s spending cuts led by Michael Gove. Tax experts have urged the UK government to reform and clarify the laws surrounding working from home, warning that more people are being confused by “complex and inconsistent” rules.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Denmark, Germany, the Netherlands, Estonia, Finland, Luxembourg, and Latvia have cautioned Brussels not to rush into making significant changes to the European Union’s electricity market in response to the energy crisis, calling instead for minor adjustments to the system. Italian Prime Minister Giorgia Meloni and her coalition partners won sweeping election victories in the country’s two wealthiest regions on Monday, bolstering the right’s hold on power as voter apathy grows.

USD

The dollar is weaker than most major currencies in the early morning trade. US President Joe Biden is expected to appoint Lael Brainard, vice-chair of the Federal Reserve, as his chief economic adviser, bringing the central bank’s second-in-command to the White House as one of Washington’s top financial policy makers. China has accused the US of flying surveillance balloons into its airspace on numerous occasions, a claim that Washington immediately denied, as tensions between the two countries continue to rise. Ford plans to license technology from Chinese battery group CATL for use in a $3.5bn factory it intends to construct in Michigan as part of its drive to expand into the electric vehicle market.

Markets

European stocks posted a modest advance and Wall Street equity futures were little changed in the build up to key US inflation data after a drop in wage-growth expectations eased some of the concern over rising prices. The yen rose following the formal nomination of Kazuo Ueda as the next Bank of Japan governor. Gains in European telecom and travel and leisure shares helped push the Stoxx 600 index 0.3% higher. Futures for the S&P 500 and tech-heavy Nasdaq 100 steadied after the underlying indexes added more than 1% on Monday. A gauge Asian stocks was on course to snap a two-day losing streak.

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

8:00 a.m.: UK Dec. Unemployment, Weekly Earnings
11:00 a.m.: Euro-Area 4Q GDP, Employment
12:00 p.m.: US Jan. NFIB Small Business Optimism
2:30 p.m.: US Jan. CPI
3:00 p.m.: Riksbank’s Thedeen speaks
3:30 p.m.: Fed’s Barkin on BTV
5:00 p.m.: Fed’s Logan speaks
5:30 p.m.: Fed’s Harker speaks
5:30 p.m.: ECB’s Makhlouf speaks

Corporate Events

Earnings include Coca-Cola, Airbnb, Carrefour, TransUnion, TripAdvisor, Norsk Hydro, Endava, Telecom Italia, Thyssenkrupp

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