Not much excitement in kick off to busy week
Not that much change for the dollar against both the euro and sterling yesterday though the single currency gained a touch to trade at around $1.08 this morning while the UK currency is in and around $1.257 (leaving EUR/£ broadly unchanged at c. 85.8p). This could be just the quiet start to a busy week however, with potential for movement ahead with Fed, ECB and BoE meetings all due in the coming days.
Similarly sovereign bond yields in Europe showed little movement yesterday though yields are falling on the open this morning with German 10-year yield down 5bps today to trade at around 2.2%. US 10-year yields have also come back a little to 4.2% while UK 10-year yields have shed 10bps this morning (to c.3.96%). Equity markets in the main still managed a positive day albeit not by much, with the Euro Stoxx 50 and S&P 500 gaining 0.4% and the FTSE underperforming losing 0.1%. A good start to today, with European markets opening higher.
UK wage growth is easing back from high levels, with average weekly earnings ex bonuses in the three months to October rising at an annual rate of 7.3% down from 7.8% in the three months to September. With interest rates increasingly biting into activity and signs the UK economy is struggling, wage growth appears to have turned coming back from its recent high of 7.9% in July. This will be welcome news to the BoE as the high wage growth is a barrier to getting inflation back down towards target but it appears the MPC may have done enough now to rein in the inflationary labour market environment. However, its much too early for this data to suggest the BoE will be considering cutting rates soon as pay increases are still far in excess of the inflation target of 2%.
The Bloomberg Survey of Economists showed that the outlook for the Euro area remains quite pessimistic. GDP is forecast to expand by 0.5% this year and 0.6% next year before picking up to 1.3% in 2025. The economy is seen as having to deal with significant headwinds, not least the run-up in interest rates, and a sizable pickup in activity is not likely to come until into the latter half of 2024. With inflation rates coming back sharply now, the survey sees HICP dropping from an average of 5.5% this year to 2.6% next year and should be in and around the ECB target by 2025. With that in mind, the survey is also seeing a slightly faster reduction in the ECB refinancing rate than previously thought, with the first cut from the current rate of 4.5% coming in Q2 2024 and back to 3% by Q3 2025.
The New York Fed’s December Survey of Consumer Expectations showed a further slowing in price expectations. Consumers expect inflation one year ahead to increase 3.36% down from November’s 3.57%. This is the lowest short term inflation expectations since March 2021 and will be welcomed by the Fed as it adds to the evidence that consumer forecasts on prices appear to be turning as current inflation rates have dropped back.
Economic data due today includes German ZEW survey, US NFIB Small Business Optimism but the main event will be US CPI released at lunchtime. With all the major Central Banks having monetary policy meetings later this week, it’s quiet today on the speaker front, Bank of France Governor Villeroy is due out but he’s unlikely to let much information slip this close to the ECB decision.