EU leaders prepare to meet in Brussels to discuss the economy and Russia/Ukraine conflict. UK house prices fall to the lowest level since the global financial crisis. The US Dollar declines as markets digest recent Fedspeak.
February 9, 2023
GBP/USD 1.2127 GBP/EUR 1.1271 EUR/USD 1.0758 USD/CAD 1.3412 EUR/CHF 0.9885 EUR/SEK 11.2226 EUR/NOK 10.9467 EUR/DKK 7.4415 USD/ILS 3.4912 AUD/USD 0.6970 NZD/USD 0.6360 USD/SGD 1.3228 USD/JPY 130.97 USD/CNH 6.7838 USD/INR 82.5325 EUR/ILS 3.7537 GBP/ILS 4.2310 USD/ZAR 17.7208
RICS announced an eighth consecutive drop in UK House price Balance overnight to -47, the lowest level since the global financial crisis when it dropped to -80. The drop in January however was the smallest drop since July 2022. Households with mortgages coming up for a renewal still face a shock - BOE figures still show mortgages with 25% deposit are still above 5% in December, as well as about 1.7 million households remaining on tracker deals that are immediately exposed to changes in the Bank rate.
Andrew Bailey will speak later today - markets will be paying close attention to his tone following the dovish pivot last week. GBP has been struggling since the MPC's comments last week - If Bailey confirms another 50 bps rate hike at the next policy meeting, that could be seen as a hawkish sign and help the pair gather bullish momentum.
The FTSE has gained 0.5% since the London open. GBPUSD was mixed yesterday, with the pair sitting up 0.4% this week in the 1.1205 region as we print. GBPEUR regained some momentum with the pair trading up 0.97% this week sitting in the 1.1275 region as we print.EUR
German harmonised inflation declined further in January, falling to 9.2% YoY against estimates of 10%. The five month low was likely thanks to government aid to help households manage rising energy costs. Whilst HICP inflation fell, national inflation figures ticked slightly higher, printing at 8.7% against 8.6% in December. Reports suggest the contrasting releases may be down to the rebasing of the national time series, from 2015 to 2020, and changing the weights of items that make up the consumption basket. Either way, the noise surrounding the inflation print is likely to add clout to the ECBs recent hawkish rhetoric, which continued yesterday. Policymaker Klass Knot spoke, echoing recent comments that inflation may have peaked, however the pace of recent rate hikes may need to continue into May.
World leaders arrive in Brussels today for the EU Summit, where the economy and ongoing Russia/Ukraine conflict are expected to be on the agenda. It is likely the EU’s green subsidies plan, intended to be in response to the US’s Inflation Reduction Act, is to be discussed in-depth for the first time by the blocs leaders. Ukraine President Zelenskiy is also expected to speak, in attempt to lobby leaders into further support of military supplies as well encouraging EU membership talks.
EURUSD trades 40bps higher this morning, amid broad Dollar weakness, the pair trades around the 1.0750 level at time of writing. European shares gained for a third straight session following a flurry of corporate earnings reports. The Stoxx 600 is up 80bps on London open, with technology and industrial stocks leading gains.USD
Yesterday, Federal Reserve policymakers speaking at separate events echoed Powell, by welcoming the moderation in prices, however they cautioned that the fight was not yet won. NY Fed President, John Williams, said “We need to attain a sufficiently restrictive stance of policy”, he also hinted that this policy would be needed for a few years.
US wholesale inventories recorded their smallest gain in December in over two years. This suggests that businesses nationwide are holding back new orders amid the double whammy of slowing sales and rising interest rates.
The dollar sold off through yesterday, before recovering to end the day flat. US equities closed lower, as markets come to terms with higher sustained interest rate expectations. The NASDAQ and S&P500 closed down 1.7% and 1.1%.ASIA/PACIFICAdani stocks declined, ending a two-day rally, with flagship Adani Enterprises losing as much as 20%, after MSCI announced a review into the number of freely tradable shares.
Prominent Chinese economist Zhong, cited that there may be room to cut rates next quarter, as the rapid rebound in economic activity following the end of the Covid Zero policy reduced the need for tighter policy.
Asian currencies are mixed against the dollar following yesterday's Fedspeak. The Australian and New Zealand Dollar rallied, along with local yields, as discussions around a potential rate cut in China boosted sentiment.ILSFurther reports have been released demonstrating how the proposed changes to the judicial system may reduce investment into Israel, and subsequently weaken the shekel.
USDILS hit year-to-date highs during the early session, briefly trading above the 3.50 level, following the publication of the report.Data & EventsEU leaders summit
Bank of England monetary policy report hearings
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