26 January 2023
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Positive data improves sentiment in Germany

By Jeanne Walters

The German IFO business sentiment indicator further confirmed the view that prospects in Germany are improving. The index rose for the fourth consecutive month, reaching a value of 90.2 in January from 88.6 in December. Underlying the rise in the headline index was a sharp pick-up in the expectations sub-component from 83.2 to 86.4. This was better than consensus expectations for a rise to 85.3. In contrast the current assessment sub-component fell marginally to 94.1 in January from 94.4 in December.

Money markets are for the first time since August 2022 betting that the Bank of England will cut interest rates by 25bps points by the end of 2023. This comes on the back of near-term weakness in indicators of economic activity, such as PMI reading and retail sales, at the turn of the year.

The Bank of Canada hiked rates by 25bps at its first meeting of the year, taking the overnight rate 4.5%. The BoC had been one of the fastest among developed market central banks in 2022, making use at a time of a 100bps of hikes in its process of tightening policy by 425bps. The latest hike looks as though it may be the last of this cycle, or at lease final for some time, as the BoC wants to assess the impact of all the hikes taken so far with governor Tiff Macklem saying that the effect of hiking was “still to come” and that it was too early to “be talking about cuts.”

Today’s key economic data and events

  • 17:30 US Initial jobless claims Jan 21: forecast 205k
  • 17:30 US continuing jobless claims Jan 14: forecast 1658K
  • 17:30 US Durables good Dec: forecast -0.6%
  • 17:30 US GDP annualized Q4: forecast 2.6%
  • 19:00 New homes sales Dec: forecast 611k  

Fixed Income

  • US Treasuries pulled higher overnight, helped by the Bank of Canada indicating it was nearing the end of its policy tightening phase. Yields on the 2yr UST fell almost 9bps to 4.125% while the 10yr yield was more muted, falling by 1bps to 3.4416%.
  • European bonds closed weaker overnight although only moderately so. The 10yr bund yield closed near flat, with an upward bias, at 21.45% while French 10yr yields added 1bps to 2.593%. Emerging market bonds fared better with 10yr South African bonds rallying with yields down 9bps to 10.264% while Turkish 10yr bond yields fell 2bps to 9.83%.


  • The US dollar dipped another day against peers overnight in line with the drop in US yields. EURUSD added 0.3% overnight to settle back above the 1.09 level, its highest daily close since April 2022. GBPUSD also gained strongly, up 0.6% at 1.2403 while USDJPY dropped by 0.5% to 129.59.
  • A potentially final hike from the Bank of Canada helped to weaken the loonie against the US dollar. The pair closed up 0.2% at 1.3392 as the Bank of Canada has said it will now move to the sidelines to assess how its tightening has impacted the economy. Elsewhere among commodity currencies, AUDUSD closed up 0.8% at 0.7104 as strong inflation data in Australia will mean the RBA stays committed to tightening policy. NZDUSD fell 0.4% to 0.6485.


  • Warnings from major tech firms around earnings season reports weighed on global equity indices yesterday. In the US, equity indices pared some of the losses towards the end of the session but the tech-heavy NASDAQ still dropped 0.2% while the S&P 500 and the Dow Jones both closed flat.
  • There were modest losses in Europe, where the CAC and the DAX dropped 0.1% and the FTSE 100 0.2%.
  • Locally, the DFM closed down 0.2% and the ADX 0.4%. The Tadawul added 0.1% and the EGX 30 closed up 2.1%.


  • Oil prices closed flat overnight and are edging up slightly in early trade today. US commercial crude stocks rose marginally last week by just 533k bbl while gasoline and other refined products also saw stock builds. Production in the US was unchanged at 12.2m b/d while product supplied fell by nearly 0.9m b/d.\

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Written By

Jeanne Walters Senior Economist

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