Daily Brief

When 7% is not enough

Not black and white

The last time US inflation came in at 7% was June 1982, when Paul McCartney and Stevie Wonder were at number one with Ebony and Ivory. There was less clarity with regard to yesterday’s re-release, which simultaneously took the shine off equity prices and sent the USD lower.

The consumer price index summary did just about everything asked of it. Headline inflation reached a four-decade high of 7% with the core rate - ignoring food and energy - at 5.5%. The numbers were in line with analysts’ forecasts. But, for the USD, that was the problem; the numbers were not as high as some had hoped. Even though the data absolutely supported the idea of rising US interest rates and quantitative tightening this year, investors had already bought into that story over the last few weeks.

On a level playing field, the inflation figures would have been positive for the dollar. On yesterday’s steeply-tilted one, they simply vindicated earlier buying decisions and encouraged investors to take profits on their long positions. The USD lost an instant four fifths of a cent to the GBP and went on to lose three quarters of a cent on the day. It is an average of 0.7% lower against the majors.

 

Neither black nor white

The US CPI data aside, Wednesday was a statistical non-event. After a busy couple of days, central bankers were conspicuous by their absence and the rest of the economic statistics were snoozeworthy at best.

Eurozone industrial production went up by a monthly 2.3% in November, leaving it lower by 1.5% than the same month in 2020. Although the monthly increase was more than four times as big as forecast, the annual decline was also three times bigger than expected. The data had zero impact on the EUR, which is flattish against the GBP and a touch higher on average.

There was nothing else of even vague statistical interest during London’s day. Overnight, New Zealand reported an unremarkable 0.6% rise in building permits for November.

 

UK output and trade

There are a couple of sterling-related ecostats today and a raft of them early on Friday morning, with the UK balance of trade, manufacturing and industrial production, and gross domestic product for the three months to November.

Data this morning cover Italian industrial production, the European Central Bank’s Economic Bulletin and the NIESR’s estimate of UK GDP in Q421. US figures after lunch relate to weekly jobless claims and producer prices. The ECB and the Fed both have senior people making virtual podium appearances.

Friday begins with NZ house prices and Australian mortgage lending, closely followed by China’s balance of trade. Ahead of London’s opening there are expected to be modest increases for UK manufacturing and industrial production, together with the almost inevitable trade deficit for November. There will be European data for French, Spanish and Swedish inflation, as well as the trade figures for the Eurozone. The important US data on Friday afternoon are December’s retail sales and the University of Michigan’s provisional index of consumer sentiment.

 

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