The rally in Asian equity markets this year took a breather as China reported a sharp slowdown GDP growth in 2022 of 3.0% compared with 8.4% in 2021. The outturn, nevertheless, was slightly better than expected, with output in Q4 stagnating rather than contracting as forecast. December industrial production and retail sales in China also beat expectations. Japanese stocks were higher ahead of the key Bank of Japan policy decision. US Treasury yields were higher in overnight trading.
UK labour market data released earlier today is the first of a set of key releases this week. The unemployment rate was unchanged at 3.7% for the three months to November, while the number of job vacancies eased to 1.16m (still historically high), providing some further signs of slowing labour market. Nominal pay growth, however, was stronger than expected, rising to 6.4% for both the headline and ex-bonus measures, which will likely maintain pressure on the Bank of England for further rises in policy interest rates.
Attention will turn to early tomorrow’s UK December CPI at 7am. It is expected to have fallen for a second month, confirming that inflation is likely past its peak. Still, we expect it to remain in double digits for now and predict a decline to 10.3% from 10.7%, driven partly by lower petrol prices. We also expect core CPI to fall to 6.1% from 6.3%. How quickly inflation falls this year is subject to several factors, including whether lower wholesale gas prices are maintained and supply bottlenecks continue to ease, and also whether services inflation moderates sufficiently as the labour market cools.
The January German ZEW survey is the main Eurozone release today. It is a survey of investors rather than businesses, but it contains useful information on potential economic prospects. We forecast a rise in the economic sentiment index to -15.0 from ‑23.3, which would point to a further improvement in prospects and raise hopes of a milder downturn. The current situation index is also expected to rise to -57.0 from -61.4.
In the US, the NY Empire manufacturing survey is one of several regional Fed surveys for January to be released. It is predicted to show a rise in its headline index to -5.0 from -11.2, still in negative territory but reversing some of December’s sharp fall. Canadian CPI is forecast to fall to 6.4% from 6.8%.
The Bank of Japan will provide a policy update early Wednesday. Although no policy change is expected, markets will be on alert for any unexpected announcements. It surprised markets in December by tweaking its yield curve control policy to allow more upside for 10-year JGB yield moves.
There was little change in major currency pairs ahead of the reopening of US markets after a public holiday yesterday. GBP/USD is steady at around 1.22 and EUR/USD is similarly little changed at 1.08. The Japanese yen is trading slightly lower this week ahead of the Bank of Japan policy announcement.
