UK DATA: Economy Closely Avoids Recession Despite Weak Services
Feb-10 07:48
UK GDP contracted by -0.5% m/m, more sharply than anticipated, implying a flat Q4 GDP q/q reading (+0.01% q/q to 2dp) in line with expectations. Q4 2022 GDP was -0.8% below pre-pandemic Q2 2019 levels.
- Services largely accounted for the downside surprise in December, falling -0.8% m/m (vs -0.3% exp).
- Public services were hit by fewer operations and GP visits, lower school attendance and arts/entertainment (partly due to strike action). Meanwhile, hospitality slowed from the World Cup momentum.
- All up, services were flat on the quarter and private consumption recorded a minor +0.1% q/q, after contracting in Q3.
- In December, industrial and manufacturing production were more robust than forecast, at +0.3% m/m and 0.0% m/m after November contractions. Manufacturing was solely boosted by pharmaceuticals and transport, contracting elsewhere. Overall production declined by -0.2% q/q in Q4, driven by a fall in energy as consumers cut back usage.
- The trade gas prices increased substantially, driving the trade deficit wedge deeper to GBP -19.3B after -14.7B in November.
- All up, Q4 growth was marginally weaker than BOE forecasts but largely in line with expectations, with Q1 2023 expected to be negative. The BOE hinted that it needed data to outperform its modal forecast for more hikes to be needed. We didn't see that in the data today, but this won't stop a hike if we see upward surprises in wage, services CPI or inflation expectations data.
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USD: In the red for the 5 past days in G10s
Jan-11 07:45
- USD remains on the back foot since the cash Govie open, a continuation of the overnight session, and for the past 5 sessions, as latest US data miss expectations, and investors are looking for a less aggressive rate path.
- ALL EYES on the US CPI tomorrow, likely to be the decider for 50 vs 25bps hike for the next meeting.
- AUD is the best performer, after the country saw a CPI and Retail sales beat overnight.
- The standout performer in G10 this past month has been the Yen, up 3.25% against the Dollar.
- The only currencies that have struggled for that period, are the SEK (-0.84%), GBP (-0.70%), and the Kiwi (-0.51%).
- Note that option expiry for AUDUSD, now sees 915mln at 0.6950, and 1.77bn at 0.6990 for today.
- Initial resistance is also seen at 0.6950.
GILTS: 30-year syndication confirmed
Jan-11 07:39
- The DMO has confirmed that it will launch a new 30-year gilt in the W/C 23 January with an ISIN GB00BPCJD997.
- This morning it has announced that the maturity will be 22 October 2053 and pay a short first coupon.
OUTLOOK: What to watch
Jan-11 07:34
After yesterday's plethora of central bank speakers (who didn't really come off the topic and give much insight into near-term monpol) and sovereign issuance, today the market might take a little bit of a breather and look ahead to tomorrow's US CPI print.
- There are still five ECB speakers due today: Villeroy, Holzmann, Vujcic, Rehn and de Cos.
- While today will also see the release of Spanish IP and Italian retail sales.
- Despite the pullback in sovereign issuance today, Germany will still launch its new 10-year Bund via auction (the 2.30% Feb-33 Bund - the first 10-year Bund with a coupon in excess of 2% in over a decade). And we will also have a US 10-year Treasury auction this afternoon.
- However, tomorrow's US CPI print is likely to trump these. Both headline and core are expected to fall in Y/Y terms, but the question will be to what extent and will this have any impact, particularly on the Fed's terminal rate views.
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