Asian equity markets are mixed with the notable exception of Hong Kong’s strong rise as it plays catch-up following its return from the lunar new year break. US stocks had ended little changed, erasing losses through the day. The Bank of Canada yesterday raised interest rates by 25bp to 4.5%, as expected, and said it will pause after hiking by 425bp over the past year.
The CBI distributives trades survey will provide an early gauge of UK retail activity at the start of 2023. In December, the survey’s net balance for the volume of sales rose to 11, but the metric measuring sales for the time of year (which fell to -3) appears to have been a better indicator of the disappointing decline in official retail sales during the month. The GfK consumer confidence index in January fell unexpectedly to -45, reflecting ongoing heightened consumer caution, although it remained above September’s low of -49.
Today’s main market focus is the first estimate of US Q4 GDP. It is forecast to show a second successive quarter of growth after the decline in the first half of last year. The weakness in some December indicators suggests that growth may be lower than was initially expected but we still look for a solid rise of 2.2% (annualised quarter-on-quarter growth). Markets, however, may regard this as ‘old news’ and may instead focus on whether December negative surprises were primarily the result of the severe storm late in the month or a harbinger of further weakness in Q1. US durable goods orders will provide further clues on these and are expected to point to the likelihood of activity remaining subdued early in Q1, particularly in manufacturing.
Also out in the US today are weekly jobless claims data, new home sales and the Kansas City Fed manufacturing survey. The claims data have yet to signal a significant weakening of labour market activity, but housing activity has been slowing for a while in response to higher interest rates, although there have been some recent tentative signs of stabilisation. December new home sales are forecast to fall after November’s unexpected rise.
Elsewhere, in light of ongoing speculation of changes to Bank of Japan policy later this year, there may be some focus on Tokyo CPI data for January ahead of the national figures in a few weeks’ time. The Tokyo core CPI measure, which excludes fresh food, is forecast to rise to 4.2% from 3.9%.
The US dollar continued to soften on speculation that Fed interest rates are nearing a peak. That helped GBP/USD recoup losses associated with disappointing UK PMI survey data earlier in the week. The cross traded back up towards 1.24, although the pound remains weaker against the euro as EUR/USD rises above 1.09.
