07 January 2022
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German inflation at multi-year highs


By Emirates NBD Research

  • Germany’s national consumer price index (CPI) rose by 5.3% y/y, the highest reading since June 1992 and marking a further acceleration in price pressures after rising 5.2% y/y in November. Another reading of inflation harmonized to EU countries (HICP) rose 5.7% y/y following a record increase of 6.0% y/y in November, according to figures released by the German Federal Statistics office. Germany's full-year HICP inflation rate jumped to 3.2% in 2021 from 0.4% a year earlier, and national CPI inflation rate rose to 3.1% from 0.5% in 2020. The German central bank last month raised its 2022 inflation forecast for to 3.6% from 1.8% seen last June and predicted a rate of 2.2% for both 2023 and 2024. The Statistics Office pointed to a number of factors driving the high inflation rates since July 2021, including base effects due to low prices in 2020, temporary VAT cuts, the introduction of CO2 pricing as of January 2021 and other crisis-related effects. Policymakers at the central bank expect inflation to ease further in the coming months as transitory effects wane.
  • The UK services PMI fell to a 10-month low of 53.6 in December from 58.5 in November, according to final data, a fraction stronger than a preliminary flash reading of 53.2. Separate figures released by the Office for National Statistics showed some 45% of hospitality businesses and 50% of firms such as beauticians and hairdressers reported increased cancellations in the run-up to Christmas, as the Omicron variant hits services and travel related industries.
  • US Initial jobless claims increased by 7,000 to a seasonally adjusted 207,000 for the week ended Jan. 1. While claims hovered around 200,000 for much of December, they have declined from a record high of 6.149 million in early April 2020. Unadjusted claims shot up 57,599 to 315,469 last week, driven by a surge in New York, which is experiencing an explosion of cases. There were also large increases in filings in Pennsylvania, Washington state, Michigan and Connecticut. With almost 1mn coronavirus cases on Monday, the highest daily tally of any country in the world. Some schools are suspending in-person learning, which could force some working parents to assume childcare duties. Workers calling in sick are causing some businesses to either temporarily close or scale back services.

Today’s Economic Data and Events

13:30 UK Construction PMI (Dec) Forecast 54

14:00 EU CPI (YoY) (Dec) Forecast 4.70%

17:30 US Nonfarm Payrolls (Dec) Forecast 400K

17:30 US Unemployment Rate (Dec) Forecast 4.10%

17:30 CA Employment Change (Dec) Forecast 27.5K

19:00 CA Ivey PMI (Dec)                

Fixed Income

  • US Treasuries continued to sink in the lead up to today’s non-farm payrolls report and in anticipation of tighter Fed policy ahead. Yields on the 2yr UST rose 5bps to settle at 0.8656% while the 10yr yield added almost 2bps to close at 1.7211%. James Bullard, the president of the St Louis Federal Reserve, said that the Fed could start to raise rates potentially as soon as March to “control inflation” in comments overnight. Markets are currently pricing in around at 80% probability of a hike at the March FOMC.
  • Gilts remain on offer as markets expect high inflation in the UK and a relatively open economy to warrant more tightening from the Bank of England. Yields on the 2yr gilt rose more than 5bps to 0.807% while the 10yr added 7bps to push up to 1.156%. Bund markets are also still being offered with 2yr bunds up almost 2bps at -0.609% and the 10yr nearing on 0% after a 2bps rise overnight.
  • Emerging market bonds were mixed overnight while a broad index of USD-denominated EM debt fell around 0.5% in line with broad risk-off moves. Indian bonds sank modestly with yields on 10yr bonds up 1.5bps while South African fell more sharply as yields added 6bps to 9.874%. In Turkey bonds continued to rally after hitting a trough earlier this week with the 10yr yield down 9bps to 22.65%.
  • Doha Bank has mandated banks for a CHF issuance. No details on size of tenor are yet available.


  • The prospect of tighter monetary policy helped to support the dollar overnight, particularly as it also encouraged a move out of risk assets. The DXY index added 0.15% overnight to close at 96.32 thanks to a similar sized drop in EURUSD, which settled at 1.1297. JPY managed to recover some of the losses from earlier in the week as USDJPY fell 0.24% to close out at 115.83.
  • GBPUSD closed lower even as gilt yields nudged higher, down 0.18% to 1.3532. Among the commodity currencies the antipodean pair of AUD and NZD were the underperformers overnight with AUD down 0.8% at 0.7162 and NZD off by 0.7% to 0.6784. USDCAD moved in favour of the loonie with the pair down 0.21% at 1.2729.


  • Equity markets were under pressure yesterday with a greater investor focus on global inflation and upcoming tightening. In Europe, Germany’s DAX lost -1.4% in the wake of the high inflation data release there, while France’s CAC dropped -1.7% and the UK’s FTSE 100 lost a less pronounced -0.9%.
  • The sell-off continued in the US where all three major benchmarks continued their slide. The Dow Jones was the biggest loser, dropping -0.5%, followed by the S&P 500 and the NASDAQ which both ceded -0.1%.
  • Within the region, the DFM dropped -0.9%, the Tadawul -0.2% and the ADX -0.1%. Egypt’s EGX30 was closed yesterday.


  • Oil prices remain bid with both Brent and WTI gaining overnight. Brent futures settled just shy of USD 82/b, up almost 1.5% overnight, while WTI rallied 2% to close at USD 79.46/b and has pushed up over USD 80/b in early trade today. Lower output levels from Libya have helped provide some near-term tightness to markets while political unrest in Kazakhstan is also helping to support sentiment. Cold weather in North America is also affecting production in both the US and Canada.
  • Gold prices closed below USD 1,800/troy oz for the first time this year, falling more than 1% overnight. Among the rest of the precious metals complex only palladium managed to gain, up 0.5% to USD 1,878.67/troy oz. Elsewhere industrial metals weakened in the face of the pending tightening of US monetary policy.

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Written By


Emirates NBD Research Research Analyst

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