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  • richard evans

GBP holds gains as inflation firms

Good morning

I’m back after a very pleasant day or so out of the office meeting clients, one of my favourite pastimes. Can’t say much has changed, GBPUSD at 1.3630, pretty much where it was when I wrote Tuesdays report although GBP is a little stronger against EUR, GBPEUR now on 1.2000 and saw a high around 1.2030 yesterday, as EURUSD holds around 1.1360. GBP remains supported by the high annual inflation print of 5.4% yesterday, if I’m not mistaken this is around a 30 year high and is forecast to go even higher. GBP unaffected though by the UKs political mess which sees PM Johnson under pressure from the opposite as well as from some members of his own party. News that US and UK have started talks on metal tariffs also help GBP.

China cut its one year loan prime rate by 0.1% overnight, following a 0.05% cut in December, a move that was widely expected. It also cut the 5 year LPR by 5bps, a fairly small and cautious cut, but further easing by PBoC is still expected. The cuts did help to support Asian equities but CNY remains firm, with USDCNY fixing at 6.3485, the lowest USDCNY fix since May 2018.

Aussie employment numbers overnight beat expectations with the unemployment rate down to 4.2%. Pressure will be on RBA to consider rate rises, perhaps not as early as its 1st Feb meeting but surely in the coming months.

Biden has said he thinks Russia will move into Ukraine, has warned Russia of consequences but those warnings seem to be falling on deaf ears.

Two years ago today I wrote ‘I’m more than a little worried about this virus outbreak in China. The official numbers are perhaps not that alarming but I have to say I never really believe many official numbers from anywhere, let alone China. 138 new cases reported, who knows what the real number is. The news that the virus has spread to other cities is also of great concern and of course this weekend we have the china lunar new year holidays where millions of people will be travelling home to families. Nothing like a packed train to spread diseases.

Over the next few weeks I continued to express concerns and was accused by many at the time of scaremongering and over-reacting. One of the few times I have been right and wished I hadn’t been. Two years on, we are desperately hoping that we have seen the worst of it, the relative lack of severity of Omicron has helped us believe we are getting some control and Boris Johnson refusal to introduce stricter measures now seems to have been the right course of action. We are not out of danger yet, France recorded nearly 500,000 new cases in one day and their hospitalisation numbers are heading back towards the highs from last January. I have to finish with some good news. It looked like Spurs were going to lose against Leicester last night despite having many scoring chances. My eldest son left the TV room a minute or so before the end of the match as Spurs trailed 2-1. Eight seconds later, Spurs has scored two goals and won the match 3-2. Doesn’t get much better than that!

- 10.00 EU CPI

- 12.30 ECB minutes

- 13.30 US initial jobless claims, philly fed survey

- 15.00 US existing home sales

- 21.30 NZ business PMI

- 23.30 Japan CPI

- 23.50 BoJ minutes

- 00.01 UK GfK consumer confidence

- 07.00 UK retail sales

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