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Jamie Jemmeson
January 21, 2022

UK Consumer Spending Slows Amid Omicron

UK Retail Sale Post Positive Reading. Can This Continue?

Yesterday was a quiet day in terms of economic data from the UK. The overall atmosphere in Westminster remains extremely tense, especially now with claims that the Whips may be using tactics of blackmail to get Conservative MPs in line. The market will continue to wait for the Sue Grey report to understand the extent of its findings and what this could mean for the leadership of Boris Johnson. If he survives this landmine, the local elections maybe his next hurdle to overcome. Despite this, we saw GBPEUR hit a fresh 23-month high.

This morning, UK Retail Sales hit the wires and were disappointing as they sank to 3.7% in December from the month before as the spread of Omicron deterred shoppers from visiting the High Street. In addition, last month’s figures followed a strong November amid reports there would be some shortages in the lead up to Christmas. Overnight the GfK measure of consumer confidence dropped four points to -19 in January which registered its weakest outturn since last February. The market is still pricing an interest rate hike in February despite the softer data, but it may be interesting to see what member of the Bank of England (BoE) and the market feels we should see a continued softening of growth data.

Safe-Haven Trading Supports the Greenback Ahead of January’s Federal Reserve Meeting

Safe-haven trading continued to dominate currency markets yesterday which also saw global equity indexes suffering heavy losses. Ongoing Russia-Ukraine tensions, global inflation fears and the US Federal Reserve’s (Fed) policy tightening prospects caused investors to increase flows into the US Dollar. Yesterday’s US data releases showed that US Initial Jobless Claims increased to 286,000 in weekly postings from a revised 231,000 previously and above consensus forecasts of 220,000. The Philadelphia Fed manufacturing index strengthened to 23.2 in January from 15.4 previously and above consensus forecasts of 20.0. Within the data, shipments and new orders rose sharply, while employment continued to increase, although at a slightly slower pace than forecast.

Looking ahead to today, it’s another quiet day of economic releases. Market focus has turned to the Fed January interest rate meeting. The Federal Open Market Committee (FOMC) are due to meet on January 25th-26th and although it is not expected to move on rates at this meeting, recent hawkish commentary from the December minutes report has led to speculation over a series of rate hikes in 2022.

EURGBP 23-Month Lows as the Euro Comes Under Pressure from ECB Minutes

EURGBP hit a new 23-month low yesterday, with the euro coming under pressure from the pound as encouraging signals are showing a strengthening of the British economy. The euro was not aided by the European Central Bank (ECB) meeting minutes published yesterday which showed that, despite Eurozone inflation hitting records highs of 5% in December, the central bank remains cautious over tightening monetary policy too quickly citing the detrimental effect a hike in interest rates will have on recovery and growth. ECB President Christine Lagarde stated that the central bank has “every reason not to act as quickly or as ruthlessly” as the Federal Reserve, its US counterpart, warning that a hike in the Eurozone base rate risks “putting the brakes on growth”.

Looking ahead at today, there is very little macro-data for the Eurozone to provide significant direction for the single currency. The only notable release is from ECB President Christine Lagarde who is due to speak very shortly at the Global Economic Outlook panel discussion at the World Economic Forum. Markets will be interested in her comments following the release of the ECB minutes yesterday for any direction on future policy adjustments.

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