Mixed Asian equity market performance followed the close in the red on Wall Street. Several US Fed speakers have reinforced the message that interest rates will need to be raised further and may need to be kept higher for longer after last Friday’s strong jobs report. Overnight, the UK RICS survey showed a further decline in the house price balance in January to -47%, the weakest since 2009, compared with -42% in December. RICS said that the market remained subdued but also noted a less harsh economic environment this year than previously envisaged.
The focus for sterling markets today is testimony at the House of Commons Treasury Select Committee of Bank of England (BoE) Governor Bailey and other MPC members – Chief Economist Pill and external members Tenreyro and Haskel. The BoE MPC last week voted to raise interest rates again by 50bp to 4% but was more circumspect about further policy tightening. The hearing will give for policymakers the opportunity to expand on this and to address any misperceptions they might feel to be in the initial reaction to their latest moves.
In the Eurozone, the delayed release of German January CPI inflation fell to 9.2% from 9.6% (EU-harmonised measure). The outturn was weaker than expected. Nevertheless, it suggests Eurozone flash estimate of 8.5% for January could be revised up but would remain lower than in December. Ahead, there will be attention on ECB speakers this evening including Bundesbank President Nagel and Vice-President Guindos. Sweden’s Riksbank is expected to raise interest rates today by 50bp to 3%.
In the US, weekly unemployment claims data are forecast to reaffirm a strong labour market. We expect initial claims to edge up to 195k, still at very low levels despite anecdotal reports of significant job losses in certain parts of the economy such as the tech sector.
Early tomorrow at 07:00GMT, UK December and Q4 GDP statistics will be released. It posted an unexpected, albeit modest, rise in November which seemed to make it far less likely that Q4 GDP would have followed up on Q3’s decline with another fall. That would mean a technical recession (at least two consecutive quarters of declines) will probably be avoided for now. We expect a drop of 0.3% for December which, assuming no revisions, would mean that Q4 activity was flat. The detail on quarterly changes will also provide an indication how much of recent activity reflects growth in final demand versus inventory accumulation, given recent reports that producers have seen a sharp rise in stocks.
The US dollar is slightly lower during the Asian trading session but has held on to most of its gains following last Friday’s stellar jobs report. The pound has crept back above $1.21 and has shown some renewed strength against the euro this week.
