Eurozone unemployment fell to a record low in December last year, declining to 7% down from 7.1% the month prior and representing the lowest rate since records began. German unemployment data showed a sharp fall in unemployment numbers, vastly reading under the consensus forecast and -48K versus an expectation of -4K. Despite German recessionary fears, it shows a strong boost to Germany’s recovery.
The Final Eurozone Manufacturing PMI index was revised marginally lower yesterday, reading at 58.7 versus a forecasted and previous reading of 59.0. Both Italian and German Manufacturing Index readings missed forecast whilst the Spanish reading read in line with the consensus forecast. Elsewhere, German Retail Sales read significantly under forecast, declining to -5.5% versus an expectation of -1.3% as COVID-19 restrictions across the Eurozone impacted footfall.
Looking ahead at today, Spanish Unemployment Change has already been released and showed that unemployment has increased by 17.2K versus an expected decline in unemployment of -50.7K. We also have the CPI Flash Estimate year-on-year which is expected to read at 4.4% versus a previous figure of 5.0%.
Sterling Remains Well Supported Ahead of Bank Of England Rate Decision
Sterling strengthened on Tuesday as markets look ahead to the Bank of England (BoE) rate decision and minutes report on Thursday. Expectations of a 25-basis point hike have underpinned Sterling amid political uncertainty and persistent higher inflation. Yesterday’s economic data releases supported Sterling during the morning session as the final UK PMI Manufacturing Index was revised higher to 57.3 from the flash reading of 56.9. The figures highlighted a slowdown in new orders growth. Meanwhile, there was a slight easing of supply chain pressures.
Elsewhere yesterday, an updated house price data was announced. Nationwide reported an increase in UK house prices of 0.8% for January with an annualised increase of 11.2%.
It’s a quiet day for economic data releases today which may see Sterling limited to narrow trading ranges as markets look ahead to the BoE rate decision at midday on Thursday. Investors are expecting the central bank to confirm it will cease gilt reinvestments when it hikes in February, starting ‘passive’ Quantitative Tightening.
Greenback Softens As Risk Sentiment Increases
The US Dollar came under pressure against most major currencies yesterday as markets appeared to reassess the prospects of 5 rate hikes from the Federal Reserve (Fed) in 2022. Overnight we saw several Fed board members put a dovish spin on the rate hike cycle with Fed Presidents Daly, Harker and George all see less than 5 hikes this year. Kansas City Fed President Esther George commented that increasing the pace of tapering may pave the way to a more gradual increase in rates. All four Fed speakers appeared to be dampening down suggestions of a super-hike which would see a 50-basis point rate hike in March.
The weakening of the Dollar yesterday appears to be linked to an increase in risk sentiment and muted US yields. However, the constructive outlook for the safe-haven US dollar is expected to remain unchanged for the time being on the back of rising Treasury yields, persistent elevated inflation, and supported by a generally Hawkish Fed given the solid pace of the US economic recovery. Yesterday data showed that The US ISM non-manufacturing index declined to 57.6 for January from 58.8 the previous month and in line with consensus forecasts.
Looking ahead to today, ADP US private sector employment report will be closely watched as is often an indicator of Friday’s key non-Farm payrolls data. The impact of the Omicron variant has prompted speculation that the January jobs report may be weaker than forecast. We expect today’s report to show only a 205k monthly increase in jobs.
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