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European markets struggled once again yesterday on a combination of concerns over disappointing Q4 trading updates and a hotter than expected US inflation print which could see central banks defer upcoming rate cuts until later in the year.
US markets also slipped back initially before recovering off the lows of the day and closing flat on the day. Bond yields had a rollercoaster day initially rising on the higher-than-expected CPI reading before turning tail and falling sharply, with the US 2-year yield dropping over 10bps to fall back towards the lows seen at the end of last year.
After yesterday’s hotter than expected CPI numbers attention now shifts to today’s US PPI release where we’ve seen prices slow much faster than headline CPI in recent months, with November PPI falling to 0.9%, however even here we could see signs of stickier inflation.
On core PPI the patterns have been much more consistent, slowing steadily over the course of 2023, and dropping to 2% in November, and the lowest level since January 2021. For December, prices here are forecast to be slightly stickier in December with headline CPI rising to 1.3%, while core prices are set to come in unchanged at 2%.
While yesterday and today’s US inflation numbers appear to show that inflation is becoming stickier China has no such concerns with both headline CPI and PPI in deflation in November with only slight improvements in this morning’s December numbers.
These modest improvements saw headline CPI coming in at -0.3% up from -0.5%, while PPI edged up from -3% to -2.7%, indicating an economy that is still struggling with weak demand.
There was an improvement on the trade front as well with this morning’s import and export numbers showing imports rise to 0.2%, up from -0.6%while exports also rose more than expected to 2.3%, up from 0.5% in November.
The UK economy saw a big decline in economic output in October, with the economy contracting by -0.3%, more than reversing the 0.2% rise in September.
All sectors of the economy struggled in October, with larger than expected falls in industrial and manufacturing production, while the wet weather impacted construction as well. Service sector activity was also disappointing sliding by -0.2%.
While disappointing, the rolling 3-month GDP number came in at 0%. Despite the disappointing numbers the Bank of England gave little sign of a pivot on monetary policy noting that these monthly numbers are subject to a lot of ebb and flow.
Today’s November numbers are unlikely to be anywhere near as poor and should see a modest rebound of 0.2%, with the index of services expected to drive the improvement with a strong rebound from their decline in October. We already know from recent services PMI numbers that the UK economy appeared to rebound strongly in the final 2-months of 2023, which in turn could see the economy avoid a technical recession after the -0.1% contraction in Q3.
November is also expected to see an improvement in industrial and manufacturing production of 0.3% after the sharp declines in October.
Asia markets saw a mixed session, as oil prices rose sharply after US and UK forces attacked Houthi targets in Yemen in retaliation for the various attacks on commercial shipping in the Red Sea, with the Nikkei 225 continuing to make new 34-year highs.
Today’s European session looks set to be a positive one despite the sharp rise in oil prices and the retaliation against the Houthi rebels.
It’s also the start of US earnings season with Q4 updates from JPMorgan Chase, Wells Fargo, Bank of America, and Citigroup, with a great deal of attention on Citigroup after yesterday’s announcement of some big charges, and disappointing investment banking performance.
EUR/USD – Another choppy day for the euro saw another failure at the 1.1000 area slipping back to 1.0930. Short term support still at 1.0875 and the 200-day SMA at 1.0830. A break above 1.1030 has the potential to target the December peaks at 1.1140.
GBP/USD – Failed to get above the 1.2800 area yesterday, slipping back to 1.2690 but remains in the wider uptrend with support just above the 1.2600 area. We need to get above 1.2800 to target the 1.3000 area.
EUR/GBP – Ran out of steam at the 0.8620 area yesterday, although we also have resistance at the 0.8670 area. Still have support just above the 0.8570/80 area, with the main support at the December lows at 0.8545.
USD/JPY – Popped above 146.00 but ran into resistance at the 50-day SMA. Support currently at the 200-day SMA and the lows this week. We need to hold above 146.00 to keep 148.00 in sight or risk a return to 140.00.
FTSE 100 is expected to open 33 points higher at 7,609.
DAX is expected to open 100 points higher at 16,647.
CAC40 is expected to open 51 points higher at 7,438.
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