- Harry Bennett
- February 21, 2023
- 4:00 pm
- 10 min read
US Producer Price Index figures come in lower then expected whilst the UK economic struggles continue!
Indices
Futures
Forex
– Equity markets were mixed on Friday, with the S&P 500 concluding its second straight weekly decline (-1.98%), as Federal Reserve officials reinforced the message that interest rates need to rise.
– The Dollar Index strengthened above 104.00 on Friday which is the highest level in 6 weeks as stronger than expected economic data and hawkish remarks from the Fed bolstered $ strength. (Chart Below)
– U.S. producer price index (PPI) figures rose 0.7% in January, this marking its biggest rise in 7 months and much larger than the market anticipated at 0.4% growth.
– Consumer debt across all categories totals $16.9 trillion, up $1.3 trillion from last year. This rise is linked to the aggressive rate hikes having a subsequent impact on mortgages as “delinquencies rise”.
– The Dollar Index ($DXY) – The $ has found support at the 78.6% retrace at 103.80 and now looks to bounce higher after moving back above the long term trend line!
– In the UK annualised inflation fell to 10.1% in January 2023, down 0.4% from the month prior (Chart Below). This was slightly better than market forecasts (10.3%) as inflation falls for its third consecutive month and it’s lowest level since September 2022.
– The UK’s economy grew 0.1% during Q4 last year, however he UK is expected to be in a recession during the remainder of the first half of 2023. Currently it is the only G7 economy that the IMF expects to contract in 2023!
– The Euro Area recorded a trade deficit of €8.8 billion in December of 2022 and below market expectations of €12.5 billion. Imports climbed by 8.7% to €247.5 billion while exports rose by 9% to €238.7 billion.
– United Kingdom Inflation – The UK’s inflation fell 0.4% last month down to its lowest level since Sept 2022!
– Natural Gas (NGH’23) saw huge declines last week after figures showed that Uniper lost €19.1 billion Euros due to undelivered Russian Gas (Chart Below). The market closed the week at 2.275, down 14.75% for the trading week.
– Stark warnings have been raised to those in Europe as the head of the International Energy Agency has warned of shortages next winter. China’s increased economic activity and boost in consumption the main driver.
– As the EU tightens Russian Oil imports, China & India are taking advantage of discounted prices. Russia’s steep discounts have helped New Delhi and Beijing negotiate their purchases below the price cap imposed by the Western Nations. This has helped offset cost of living increases and has kept the Ukraine war afloat.
– Natural Gas (NGH’23) – Natural Gas has fallen past the key support at 2.341 and now looks to find support at 2.300!
Conclusion
The market will be looking closely at the latest PMI prints, existing home sales, FOMC minutes, Q4 GDP revision, and the highly-anticipated core CPE data on inflation. The holiday shortened trading week also focuses in on retail giants Walmart and Home Depot Q4 earnings. The weakness in the U.S. Equity markets is fuelled by concerns of the Fed and corporate earnings coming in on the low side of estimates. Despite navigating a difficult macroeconomic landscape markets must also consider the geopolitic risks at present.
Written by:
Harry Bennett
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