German inflation slows but still high

German inflation slowed to 9.2% y/y in January, down from 9.6% in December and slower than the consensus prediction of 10.0%. Prices were 0.5% higher than a month previous, a smaller rise than the predicted 1.3% rise. The delayed data point was 0.5pp higher than the assumption in the preliminary Eurozone inflation print of 8.5%, meaning that the single bloc’s inflation rate will likely be revised up modestly on the second reading. While the slowdown in Germany price growth will be welcome, the relatively slow pace of disinflation will likely keep the hawkish bias from the ECB as laid out once again in its most recent policy rate decision, where they raised the benchmark rate by 50bps.

Chinese CPI inflation came in in line with expectations in January, at 2.1% y/y, up from 1.8% in December. Inflaiton has been weak in China compared with the rest of the world as the protracted lockdowns there have dampened demand. Given that the uptick in inflation in January was driven by food prices (up 6.3%) rather than services (1.0%) the PBOC is likely to act to support demand, especially given that pipeline pressures from PPI inflation looks benign: factory gate prices were 0.8% y/y in January, a greater contraction than the predicted 0.5%.

Egypt’s CPI data was also released yesterday, showing an acceleration to 25.8% y/y, from 21.3% the previous month. The monthly measure was at 4.7%. A series of significant moves lower against the USD by the Egyptian pound is helping fuel inflation, but the Central Bank of Egypt has also cautioned that there are significant domestic demand driven factors also: core inflation was at 31.2% y/y, up from 24.4% in December. Food prices were up 48.0% y/y while transport was at 18.9% and is likely to move higher in the coming months once an anticipated fuel price adjustment has been implemented. We anticipate that the Central Bank of Egypt will hike rates by 200bps at its March meeting after a surprise hold last month. Meanwhile, President Sisi has said that Egypt is prepared to put all companies run by the National Services Projects Organisation up for sale as part of the country’s planned privatisations and efforts to boost private sector activity as stipulated by the IMF programme entered into in March.

Initial jobless claims in the US came in just above expectations at 196,000 in the week to February 4, compared with the predicted 190,000 and up from 183,000 the previous week. This was the first uptick in the measure in six weeks, but remains relatively low and with the high level of job openings still and the extraordinary NFP report last week, it appears that the high-profile layoffs in the US are largely confined to certain sectors still for now.

Today’s Economic Events and Data

• 11:00 UK GDP, Q4, % q/q. Forecast: 0.0%
• 19:00 US University of Michigan sentiment index, February. Forecast: 65.0

Fixed Income

• US Treasuries softened overnight with few fundamental catalysts at play in the market. Yields on the 2yr UST added 6bps to close at 4.482% while the 10yr yield rose almost 5bps to 3.6579%. By contrast, European bonds pulled stronger overnight, receiving a lift after a slower than expected German inflation print. Yields on 10yr bunds closed lower by 6bps at 2.294%.

FX

• The pull higher in yields toward the end of the trading day helped to temper some of the dollar’s losses but the greenback still closed lower against most peers overnight. EURUSD added 0.3% to close at 1.074 while GBPUSD gained 0.4% to rise to 1.2121. USDJPY, however, moved in favour of the dollar, moving up by 0.1% to 131.59.
• Commodity currency price action was more muted with USDCAD up less than 0.1% at 1.3454 while AUDUSD added 0.2% to 0.6936 and NZDUSD gained 0.3% to 0.6327.

Equities

• Asian markets started the day off on the front foot yesterday as the Hang Seng added 1.6% and the Shanghai Composite 1.2%. In Japan, the Nikkei closed down modestly as it lost 0.1% but the Topix recorded a 0.1% gain. Indian markets were up, with the Sensex adding 0.2%.
• The UK’s FTSE 100 closed at another record high yesterday as it gained 0.3% on the day. The DAX gained 0.7% and the CAC added 1.0%.
• In the US, there were further losses with the Dow Jones, the S&P 500, and the NASDAQ losing 0.7%, 0.9%, and 1.0% respectively.
• Locally, the ADX closed almost flat for a second day running, up just 0.0%, while the DFM added 0.8%.

Commodities

• Oil prices snapped a recent string of gains with a decline of 0.7% in Brent markets at USD 84.50/b and WTI down by 0.5% at USD 78.06/b. Anxiety over the resilience of the global economy to recession pressures is weighing on the market even as most forecasting agencies still expect a strong recovery in China’s consumption this year.