Asian equities are mostly lower this morning. That followed declines in US equities that reports suggest were at least partly induced by further Fed comments that US interest rates have further to rise. Chinese inflation data for January was mixed as annual producer price inflation fell to -0.8% in January but consumer price inflation accelerated to 2.1% from 1.8% in December. The Japanese government has confirmed that it will announce its nominee for the next Bank of Japan Governor on 14th February. Early reports suggest that the favourite for the nomination and has refused to accept.
Just released UK GDP data showed a fall of 0.5% in December led by a big drop in services activity. That was a bigger decline than expected but a contraction for Q4 as a whole was still avoided with activity flat on the quarter. That means the UK just missed a ‘technical’ recession (at least two consecutive quarters of negative growth) in late 2022. The detail of the drivers of GDP showed that growth in Q4 was driven by stronger growth in domestic demand partially offset by weakness in international trade.
In Italy, industrial production is expected to have risen modestly in December. So far the outturns for other Eurozone countries have been mixed. French industrial production rose by 1.1% but German output slumped by 3.1%. Today’s Italian data will provide further indications of how the Eurozone’s factory sector is coping with the impact of high energy prices and rising interest rates.
In Canada, monthly labour market data for January are expected to provide some indications that wage growth is slowing but also that the labour market remains tight. The minutes of the Bank of Canada’s last policy meeting acknowledged that picture. However, it also said that domestic inflationary pressures from this area are expected to ease. The BoC has indicated that it will now ‘pause’ after raising interest rates significantly and even a much stronger-than-expected report today is unlikely to change that plan.
In the US, consumer confidence has been rebounding of late after a big fall last year. That seems in part due to the recent fall in inflation but, as gasoline prices rose last month, it will be interesting to see if today’s University of Michigan consumer sentiment survey shows some weakening. The latest readings on inflationary expectations will also be interesting in light of the petrol price bounce.
US bond yields rose yesterday reflecting rising market concerns that earlier estimates of the outlook for US interest rates were too optimistic. In contrast, UK 10-year gilt yields fell modestly. In currency markets, sterling edged up against both the euro and the US dollar, but has softened overnight.
