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Central bank officials continue to push back against early rate cut talk

Good morning


A stronger US retail sales number yesterday confirms a resilience in consumers despite high interest rates. This all adds weight to Fed thinking that while we may see rate cuts this year, don’t necessarily expect them to come too soon. The same can be said for other central banks. ECB officials have also pushed back against market expectations of an early rate cut, although Lagarde did say yesterday that she’d expect to see lower rates by the summer.


Lagarde speaks again at Davos this afternoon. Meanwhile, minutes from the last ECB meeting will be released today, we’ll be looking for any sign of rate talk although Lagarde has said that rate cuts were not even discussed.


GBPO continues to trade on the firm side after yesterdays surprise inflation numbers. GBPUSD is 1.2685, GBPEUR is up to 1.1660 while in the crosses, GBP is now at 187.65 against JPY, only 100 pips off the November highs that were, in turn, the highest we’d seen since 2015. EURUSD is 1.0875, USDJPY sits just on 148.00.


It Is difficult to keep track of what is going on in the Middle East. Iranian backed Houthis have been listed as a terrorist group by the US after recent attacks on shipping in the Red Sea. Meanwhile Iran has attacked targets in Pakistan, Pakistan have retaliated. All this suggests risks of a widening conflict although oil prices have not really moved higher, staying fairly stable through December and January with WTI now $73 and Brent around $78, each broadly in the middle of recent ranges.


UK retail sales numbers will be released early tomorrow morning. You will remember that I was expecting a bad reading last month after seeing many pre-Christmas sales, as it turned out that was a little premature, but I’m thinking that todays reading will be the one reflecting disappointing sales even though you’d expect the numbers to be supported by Christmas spending. I’m not sure we’ll see much impact on GBP mind you.


I’m out of the office tomorrow so there will be no report, I’ve added Fridays calendar below although as we know it is really rate expectations that are driving the markets for the time being.


Have a great weekend as and when it comes. Still very frosty here but looks like it’ll warm up into the weekend. I’ve been out of action for much of January with Covid, this is really the first weekend where I’ll be thinking of doing any chores. Had a quick wander round the garden yesterday, the list of things to do is growing….



- 12.30 ECB minutes

- 12.30 Feds Bostic speaks

- 13.30 US housing starts, initial jobless claims, Philly fed survey

- 15.15 ECBs Lagarde speaks

- 21.30 NZ business PMI

- 23.30 Japan CPI


Friday


- 07.00 UK retail sales

- 10.00 ECBs Lagarde speaks

- 13.30 CAD retail sales

- 15.00 US Michigan sentiment survey, existing home sales

- 21.15 Feds Daly speaks



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