Inflation in the United Kingdom fell for the second month in a row, as fuel, clothing, and entertainment expenses brought down the index.
The Bank of Japan rejected market pressure and maintained its yield curve management measures, sending the yen significantly down and stocks higher.
Canada Consumer Price Index (CPI) increased 6.8 percent on an average annual basis in 2022, reaching a 40-year high.
According to a statement released on Wednesday by the British Office for National Statistics, inflation decreased to 10.5% in December from 10.7% in November.
According to a panel of experts, the British consumer price index will fall from the 41-year high of 11.1% attained in October to 10.5% in December. The core CPI, which excludes items like food, energy, alcohol, and cigarettes, was steady at 6.3% in December.
According to the agency, increases in housing and household services, food, and non-alcoholic beverages more than offset the largest downward contribution, which came from the transportation, apparel, and leisure sectors.
As Western sanctions restrict Russian oil and gas supply access, inflation rates have risen throughout 2022.
This is due in large part to increases in energy prices. Rishi Sunak, the British premier, promised to halve U.K. headline inflation on January 4 in order to “reduce the expense of living and provide people financial security,” and policymakers have been responding to growing inflation with a wave of interest rate increases.
Most recently, on December 15, the Bank of England increased its benchmark interest rate by 0.5 percentage points to 3.5%.
When it meets on February 2 to decide on its next monetary policy actions, the financial markets expect a further increase to 4%.
Since the close of last year, the U.K. has experienced waves of industrial action, and this month and early February will see strikes by teachers, train transport workers, public service employees, and nurses.
In response, the government has proposed a law against strikes that would impose “minimum service norms.”
The rate of inflation continues to outpace worker pay, with average U.K. salaries rising 6.4% from September to November 2022, according to data released by the ONS on January 17.
US Economic Data Expectations
Expecting moderate holiday shopping while costs are low seems stupid because the US customer seldom misses a good deal. That generates a chance. At least in comparison to weaker currencies, the US Dollar has the opportunity to increase.
The two US Retail Sales and the Producer Price Index (PPI) for the month of December will be released simultaneously on January 18 at 13.30 GMT.
US Retail Sales
Why do retail sales matter? Despite efforts to bring manufacturing back to American soil, almost 70% of the country’s economy is based on consumption. Always a market mover, retail sales become even more influential when it influences growth forecasts.
Consumption statistics for December will be included in the Gross Domestic Product (GDP) data for the fourth quarter of 2022, which will be released the following week.
The economic calendar predicts a meager 0.1% rise in sales following a 0.6% decline in November.
In a month with Black Friday sales and in the lead-up to the holidays, it is difficult to see Americans maintaining low levels of spending, but severe weather around Christmas surely helped to lower estimates. Perhaps economists went too far.
The majority of purchases are made online, and many people still have extra savings from the pandemic era. Because of the decline in oil prices, investors are more likely to respond to the Retail Sales Control Group, often known as the “core of the core,” than the headline.
Another 0.2% decline is anticipated here for the second time in a row. It seems overly cautious to me.
US Producer Price Index
Although the December Producer Price Index report is relevant, the key publication is Retail Sales. Every price-related data point is significant because the Federal Reserve (Fed) is concerned about inflation.
The headline PPI is anticipated to slow from 7.4% to 6.8%, while the core PPI is anticipated to decline from 6.2% to 5.9%.
PPI forecasts make sense in contrast to Retail Sales expectations, particularly in light of Consumer Price Index (CPI) data that has already been made public. Analysts’ judgments of the CPI were accurate.
However, markets may have priced in even lower numbers because they have grown accustomed to anticipating poor inflation reports.
BoJ Monetary Policy Statement
In defiance of market predictions that it would gradually wind down its enormous stimulus program in the face of rising inflationary pressure, the Bank of Japan maintained its ultra-low interest rates on Wednesday, including a bond yield cap it was battling to defend.
Investors undid bets they placed assuming the central bank would change its yield control strategy in response to the surprise decision, which sent the yen plunging against other currencies and bond yields falling to their lowest levels in decades.
The BOJ created a new tool to keep long-term rates from increasing too much rather than altering its stimulus program, which some analysts saw as a sign Governor Haruhiko Kuroda may hold off on major policy changes during the remaining months of his term, which ends in April.
The central bank did not alter its advice, which permits a 50 basis point range on each side of its 0% objective for the yield on 10-year bonds.
“There is a lot of uncertainty around the economy of Japan. Our stimulus strategy must boost the economy in order for businesses to increase wages, “added Kuroda.
By showing its resolve to use market tools more flexibly, the BOJ wanted to signal to markets that it won’t make significant changes to the monetary policy under Kuroda. the decision to strengthen its main market operation tool is anticipated to help curb increases in long-term interest rates.
However, it also highlights the BOJ’s steadfast commitment to defending the cap.
On March 9-10, Kuroda will hold his final policy meeting, capping a decade at the helm of the bank that unleashed a massive monetary stimulus but ultimately fell short of its goal of stably recovering sluggish consumer demand.
The BOJ’s decision on Wednesday comes after its unexpected decision to quadruple the yield band last month; a change analysts claim failed to address market distortions brought on by its significant bond purchases.
The BOJ statement caused the dollar to quickly rise 2.4% to 131.20 yen, marking its largest one-day increase since March 2020. The Nikkei stock average also had a 2.5% increase to 26,791.12, its highest closing since December 19.
Canada Core Price Index
According to Statistics Canada, the Canada Consumer Price Index (CPI) increased 6.8 percent on an average annual basis in 2022, reaching a 40-year high.
In 2022, there were widespread price rises, with increasing energy prices making up the largest portion of overall inflation.
According to the national statistical agency, the yearly average CPI increased by 5.7 percent in 2022 when energy was excluded.
In the first half of the year, price rise over the prior year climbed every month, peaking at 8.1 percent in June, and then declined in the second half of the year.
Following a 6.8% increase in November, the CPI increased by 6.3 percent in December, according to the agency.
Consumers pay an average of 28.5 percent more per year for fuel, according to the government. Because of increased demand as a result of the relaxation of COVID-19 limits and increased supply uncertainty across the globe, gasoline prices increased.
Following a 24.4 percent increase in 2021, the price of fuel oil and other fuels increased by 59.6 percent annually.
After rising 2.2 percent in 2021, the cost of food purchased from stores increased by 9.8 percent in 2022, the largest rate since 1981.
World Economic Forum Updates
Business executives and economists in attendance at the annual meeting of the International Economic Forum claim that high inflation—and high-interest rates that central banks have forced through to combat it—have shaken the world economy.
As a result, there is now a risk of a recession, which has caused some of the largest firms in the world to hold back on investing in anticipation of a rocky year.
Inflation is on the rise, but some believe it has peaked as a result of the invasion of Ukraine by Russia.
As some business executives hope, that might signal a soft landing for the economy. Alternatively, another increase in interest rates can cause a recession to last longer.
Key Highlights
- Henry Kissinger, a former secretary of state, promoted Ukraine’s membership in the North Atlantic Treaty Organization.
- High employment rates, according to Banco Santander Executive Chair Ana Botin, will assist the world economy in escaping the type of severe recession last experienced in 2008–2009.
- Ramon Laguarta, chief executive officer of PepsiCo, stated that it was the duty of huge corporations to adopt innovative technologies to improve the sustainability of their products.
- The head of London Heathrow Airport predicted that normal international travel wouldn’t resume until the end of the year.
- The United States will not budge from the nation’s target of keeping global warming to 1.5 degrees Celsius above preindustrial levels, according to climate envoy John Kerry. Others claimed the objective was slipping.
- According to the U.S. Labor Secretary, businesses can use the pandemic as an opportunity to reconsider their hiring and retention strategies.
- The reductions in staff and layoffs being implemented by major IT corporations, according to Celonis co-CEO Alexander Rinke, shouldn’t discourage entrepreneurs from starting their own enterprises.
Corporate Earnings
On January 18, 2023, before the market opens, the following companies are anticipated to release their financial results for the quarter ending December 31, 2022.
Charles Schwab Corporation (SCHW)
The group of investment bankers expects it to produce earnings per share of $1.10 on average. Comparing this figure to the same quarter a year ago, there has been a growth of 27.91%.
According to analysts, SCHW’s price-to-earnings ratio for 2022 is 21.17, compared to an industry ratio of 15.10, suggesting that it will experience higher profit growth than its rivals in the same sector.
Prologis, Inc. (PLD)
Analysts that track the stock have predicted $1.21 in profits per share for the firm. Comparing this value to the same quarter last year, there has been a gain of 8.04%. PLD underperformed by -0.89% in terms of consensus earnings per share for the second quarter of 2022.
Forecast PLD’s 2022 Price to Profits ratio is 23.76, higher than the industry average of 13.40, suggesting that they would outperform their rivals in the same sector in terms of earnings growth.
PNC Financial Services Group, Inc. (PNC)
The consensus earnings per share projection for the bank company from analysts that track the stock is $3.95.
Comparing this figure to the same quarter last year, there has been a growth of 7.34%.
Every quarter over the past year, PNC has exceeded expectations. The largest one occurred in the third quarter of the year when they outperformed the consensus by 3.28%.
J.B. Hunt Transport Services, Inc. (JBHT)
Analysts have predicted $2.47 in earnings per share for the truck firm. Comparing this figure to the same quarter last year, there has been an 8.33% growth. Every quarter over the past year, JBHT has exceeded expectations.
The greatest one occurred in the third quarter of the year when they outperformed the consensus by 4.9%. According to investment analysts, JBHT’s 2022 Price to Profits ratio is 18.15, higher than the industry average of 13.00, suggesting that it will outperform its rivals in the same sector in terms of earnings growth.
Other corporate results are expected from Barry Callebaut, Burberry, Currys, Galliford Try, Eat Takeaway, Liontrust Asset Management, Pearson, Qinetiq, Rathbones, Richemont, United Airlines, Vistry Group, and WHSmith.
As a trader or investor, it is essential to keep an eye on the various economic indicators and data releases that have the potential to impact currency values. Some of the key releases to be aware of include the following:
GDP: The Gross Domestic Product is a measure of a country’s overall economic performance.
Stronger-than-expected GDP figures can indicate a robust economy and boost investor confidence, leading to a rise in the value of the currency.
Inflation: Consumer prices can be a key indicator of inflation, which can affect currency values.
Higher inflation can lead to a decrease in the value of a currency if it is not well managed by the central bank.
Employment: Strong employment figures can indicate a healthy economy and increase investor confidence, which can increase the currency’s value.
Interest Rates: Central banks use interest rates to control inflation and monetary policy. Changes in interest rates can have a significant impact on currency values.
Political and geopolitical events: Political stability and international relations can also have an impact on currency values.
Keep an eye on these releases, and be aware of any surprises, as they can significantly impact the value of currencies.
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