Market Commentary – 30th January 2023 from Will Binks

Economic data on Producer Price Inflation (PPI), which measures the prices paid by businesses for materials and other goods, slowed to 16.5% in December, falling to its lowest rate in nearly a year. According to the Office for National Statistics, the decline was driven by the prices of equipment and petrol.

A closely watched manufacturing purchasing managers’ index (PMI) showed that activity manufacturing has continued to decline and is still in recessionary territory. Staffing levels in the sector have been cut, whilst input cost inflation has shown some signs of slowing down.

Economic Data showed that Germany’s gross domestic product (GDP) shrank by 0.2% in the final quarter of 2022. This contraction was mainly led by a decline in consumption from German households amidst high inflation and rising interest rates in the Euro area.

A Manufacturing and Services Purchasing Managers’ Indices (PMI) suggested that business activity is still in decline, but at a much slower rate. Input costs for manufacturers rose at their slowest rate since April 2021 and led to an overall increase in business confidence.

A manufacturing PMI for January suggested that the sector continued to contract, with its second fastest monthly fall since May 2020. Businesses reported that client demand weakened and many firms have cut their workforce for the first time since July 2020.

The US economy released better than anticipated growth data with GDP growth of 2.9% for the final quarter of 2022. Consumer spending continued to remain stable, increasing by 2.1%. The Federal Reserve are expected to increase rates at their upcoming meeting this week.

The Bank of Japan (BoJ) is under increased pressure to shift from its loose monetary policy standpoint amid rising costs and Japan’s core inflation rate rising to a 41-year high of 4%. It comes as the country has seen their manufacturing sector decline, following weak demand and new orders, with the sector’s activity sitting at a 26 month low.

China’s ongoing wave of Covid following the lifting of restrictions in December appears to be coming to an end. The Lunar New Year holidays last week were expected to cause a rebound in cases which hasn’t yet appeared to come to fruition. Despite the re-opening of the country, the slow growth in the US and Europe is expected to dampen China’s exports and therefore their recovery.

The Bank of England is due to meet on Thursday to vote on further interest rate rises. Investors are anticipating an increase up to 4% this week, but are split on how much further they may rise beyond that.

The European Central Bank (ECB) are widely expected to continue with their hawkish stance on policy, with an anticipated increase of 0.50% this week and the President Christine Lagarde warning that they would continue to raise interest rates and leave them at that level for as long as necessary.

GBP / EUR – Current 1.1400 Previous 1.1419

The Pound was flat against the US Dollar last week. Against the Euro the value decreased by 0.16%