UK jobs data misses expectations

• Labour market data for the UK showed that payrolls increased by 108k in January, falling short of market expectations for more than 130k jobs to be added. The unemployment rate in the three months leading up to December held steady, however, at 4.1% while earnings remained buoyant at 3.7% y/y, well off the highs of mid 2021 when incomes were boosted by base effects, but still above historic trends. However, income growth is still well below inflation in the UK, squeezing real incomes and a dynamic that is likely to worsen in coming months as higher energy prices and taxes bite into consumers.
• The ZEW index of investor confidence in Germany improved for February, rising to 54.3 from 51.7 a month earlier. A measure of the current conditions on the Germany economy also increased. Near-term indicators for Germany’s economy show that manufacturing has improved at the start of the year and as Covid restrictions are eased the outlook for growth remains decent for the rest of 2022.
• Price pressures in China slowed in January, affirming the PBOC’s steps to ease policy recently. Producer price inflation ticked down to 9.1% y/y from more than 10% a month earlier while CPI inflation rose by just 0.9% y/y. High base effects are helping to bring down headline inflation but the government in China has also taken steps to try and bring down domestic commodity prices as well.
• The UAE and the Philippines have begun negotiations for a bilateral trade deal, according to a statement from the Philippines government. Direct trade between the two countries amounted to USD 0.9bn in 2021, an increase of almost 36% y/y.
• Inflation in Saudi Arabia rose by 1.2% y/y according to the latest government estimates, increasing at the same pace as December. Food costs did accelerate, up 2% y/y against a bit more than 1% a month earlier. GCC economies generally have been insulated from many of the inflation pressures affecting major economies, both developed and emerging, and while we expect inflation to accelerate across Saudi Arabia and the UAE this year, it shouldn’t be at a level that will derail growth. We forecast inflation at an average of 2% y/y in Saudi Arabia this year. 

Today’s Economic Data and Events

11:00 UK CPI y/y January: forecast 5.4%

17:30 US Retail sales m/m January: forecast 2%

17:30 CA CPI y/y January: forecast 4.8%

18:15 US Industrial production m/m January: forecast 0.5%

23:00 US FOMC minutes January

Fixed Income

• An apparent easing of tensions in Eastern Europe—with press reporting that some Russian troops were returning to bases—helped to reinvigorate risk assets overnight. After a few days of receiving haven bids, US Treasuries returned to their downward trajectory though moves on the front end were relatively limited. The 2yr UST yield closed essentially unchanged at 1.5774% while the 10yr added around 6bps to settle at 2.0434%.
• European bonds closed mixed with 10yr bunds slipping—yields added 2bps to 0.304%--while the 10yr gilt managed to gain with a modest drop in yields.
• In Emerging markets Russia’s 10yr bonds recovered some ground on the news with yields off by more than 30bps to 9.780%. South African bonds edged upward with yields falling by around 4bps to 9.592% while Indian bonds were relatively stable.

FX

• The recovery in risk assets helped to push the dollar lower after several days of gains. We still hold a constructive view on the dollar against peers given the policy differential we believe the Federal Reserve will endorse this year but the greenback will remain strongly negatively correlated to risk. EURUSD managed to add almost 0.5% overnight to settle at 1.1359, pushed higher by geopolitical headlines while USDJPY held close to recent levels at 115.61. GBPUSD showed more limited reaction to the news, closing nearly unchanged at 1.3538.
• Commodity currencies rallied overnight with AUD and NZD both up by around 0.35% to 0.7152 and 0.664 respectively. USDCAD fell slightly to 1.2718 in favour of the loonie.

Equities

• An apparent easing of geopolitical tensions in Eastern Europe provided a boost to global equity markets yesterday. European indices started the day on the front foot as the FTSE 100 added 1.0%, the CAC 1.9% and the DAX 2.0%. This risk-on tone continued in the US later in the day as all three major benchmark indices ended higher. The NASDAQ led the pack with a gain of 2.5%, followed by the S&P 500 (1.6%) and the Dow Jones (1.2%).
• Locally, the DFM added 1.0%, the ADX 0.3% and the Tadawul 0.3%. The biggest regional gains were in Egypt and Turkey as the EGX 30 and the Borsa Istanbul gained 1.4% and 1.8% respectively.
• The bullish tone has continued today in early trading in Asia, as all major indices are trading up so far. At the time of writing the Shanghai Composite was up 0.7%, and the Nikkei had gained over 2.1%, recouping yesterday’s losses of -0.8%.

Commodities

• Energy markets remain in thrall of the geopolitical headlines coming out of Eastern Europe and news of a possible de-escalation of tension helped to sink prices overnight. Brent futures fell more than 3.3% to USD 93.28/b while WTI dropped 3.5% to USD 92.07/b. Both contracts are edging lower in early trading today.
• Data from the API showed a drop in US crude inventories of 2.4m bbl at the Cushing price point amidst a broader decline of around 1m bbl. Official numbers from the EIA will be out later this evening.

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