Fundamental News And Technical Analysis Report – 25 January 2023

25 Jan 2023

UK factories cut prices, helping BoE’s inflation fight.

Asian stock market closes in green on Tuesday. The Shanghai Composite is up 0.76% at 3264.81. Overall, the Singapore MSCI is down 0.40% at 302.55. Over in Hong Kong, the Hang Seng Index is up 1.82% at 22044.65. In Japan, the Nikkei 225 is up 1.46 at 27299.19. While the Topix index is up 1.42% at 1972.92, South Korea’s Kospi is up 0.63% at 2395.26. Australia S&P/ASX 200 up 0.44% at 7490.40.

Top News of the Day:

Britain’s manufacturers unexpectedly reduced their prices in December by the most since April 2020, welcome news for the Bank of England which is weighing up how much higher it needs to take interest rates to fight soaring inflation.

Output prices fell by 0.8% in December from November, the Office for National Statistics said on Wednesday.

Input prices paid by factories fell by 1.1% in month-on-month terms, also the biggest drop since April 2020, when much of Britain’s economy shut down at the start of the coronavirus crisis, the ONS said.

Economists polled by Reuters had expected producer output prices to rise by 0.3% on a monthly basis, and for input prices to fall by 0.6% month-on-month.

Britain’s main inflation measure – the consumer prices index – fell in November and December but at 10.5% it is more than five times the BoE’s target.

The central bank is watching for signs of future inflation pressure. Investors expect the BoE to raise interest rates for a 10th time in a row on Feb. 2 with most pricing in another half-percentage-point increase to 4%.

Market Summary as of 24/01/2023:

European equities Tuesday closing. The DAX futures contract in Germany traded down 0.07% at 15093.11, and CAC 40 futures up 0.26% at 7050.48. UK 100 futures contract in the U.K. is down 0.35 at 7757.36

In the U.S. on Wall Street, the Dow Jones Industrial Average closed up 0.31% at 33733.96. The S&P 500 was down 0.07% at 4016.95 and the Nasdaq 100 was down 0.27% at 11334.27, NYSE 0.14% close at 15877.79.

Top Market News Today:

In the Forex market, GBPUSD is down 0.24% at 1.2304. The USDJPY is up 0.26% at 130.44, and The USDCHF is up 0.26 at 0.9243. EURUSD down 0.01% at 1.0881. EUR/GBP up 0.27% at 0.8843. The USD/CNY is up 0.01% at 6.7820 at the time of writing.

In the Commodity market U.S. Gold futures are down at 0.46% $1,928.40. Elsewhere, Silver futures down 0.51% at $23.53 per ounce, Platinum down 0.27% at $1053.48 per ounce, and Palladium down 0.71% at $1732.00.

Brent Crude Oil up 0.35% at $86.41 per barrel.

In the Cryptocurrency Markets, Bitcoin is at 22725.80 up at 0.40%, Ethereum is down 0.16% at 1553.23, and Litecoin is at 90.76 up 0.91%, at the time of writing.

Top Market Segment to Watch Out for Today:

OIL– Oil prices rose on Wednesday, recovering a measure of sharp losses from the prior session, although fears of a global recession and signs of another major build in U.S. inventories kept gains limited.

While the world’s largest oil importer relaxed anti-COVID measures earlier this month, a raft of weakening economic indicators in other major oil markets, particularly the U.S. and Europe, have sapped optimism over crude markets.

Economic News:

US: – Any agreement to address the U.S. debt ceiling and avoid a first-ever default by Washington will have to come from President Joe Biden and House of Representatives Speaker Kevin McCarthy, the top Senate Republican said on Tuesday.

Senate Minority Leader Mitch McConnell, who has played an integral role in debt ceiling negotiations in the past, predicted that no solution formulated by the Democratic-led Senate is likely to win approval from the House, which Republicans control by a slim margin.

“In this current situation, the debt ceiling fix – if there is one, or how it’s to be dealt with – will have to come out of the House,” McConnell told reporters.

House Republicans want to exact spending cuts from Biden in exchange for a deal on the debt ceiling. But the White House has repeatedly rejected negotiations over spending cuts, arguing that Congress has an obligation to increase the borrowing limit and avoid a default and the possibility of economic chaos.

“It’s entirely reasonable for the new speaker and his team to put spending reduction on the table. I wish him well in talking to the president. That’s where a solution lies,” McConnell said.

“I can’t imagine any debt ceiling provision passed out of the Senate with 60 votes could actually pass this particular House,” he added.

Biden and McCarthy have agreed to meet to talk about the debt ceiling and other issues. But no meeting has been scheduled.

McConnell spoke days after the U.S. government hit its $31.4 trillion borrowing limit, prompting the Treasury to begin extraordinary measures that could stave off a default until early June. Treasury Secretary Janet Yellen has called on Congress to move quickly to address the borrowing limit.

Euro Zone: – The Bank of England will lift the Bank Rate by 50 basis points on Feb. 2 to 4.00% and then add another 25 basis points in March before pausing, according to a Reuters poll of economists who said the greater risk was that it would do even more.

Britain’s central bank was one of the first among global peers to begin raising borrowing costs and has added 340 basis points since it began the current cycle in December 2021 to tame inflation now running at more than five times its 2% target.

Prices jumped 10.5% in December from a year earlier, official data showed last week, as food and drink prices increased at their fastest pace since 1977.

A firm majority, 29 of 42 respondents to the Jan. 18-24 poll, said the Bank would add 50 basis points next Thursday. Thirteen opted for a more modest 25-basis-point rate rise.

Median forecasts in the poll showed the Bank would then add 25 basis points in March, giving a peak rate of 4.25%. It was last over 4.00% in late 2008.

Both the United States Federal Reserve and the European Central Bank are also nearing the end of their policy tightening campaigns, separate Reuters polls found.

Markets are pricing in a peak of 4.50% for the Bank Rate. Governor Andrew Bailey said last week there was now more optimism about the prospects for inflation falling this year, noting the BoE had not pushed back against market expectations.

Inflation has proved sticky, however. When asked about the risks around their peak rate forecasts, 20 of 24 respondents to an additional question said the greater risk was that Bank Rate ends up higher than they expect rather than lower.

“More resilient growth versus our forecasts should mean core inflation is likely to be stickier and give some space or force the BoE to hike a bit more than we forecast,” said Raphael Olszyna-Marzys at J. Safra Sarasin.

Inflation has likely already peaked, but according to the poll, it won’t fall to the Bank’s target until the end of next year. It will average 7.0% this year and 2.5% in 2024, the poll found but will drop to 1.9% across 2025.