17 February 2023
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US inflation more persistent than expected

By Jeanne Walters

The January US PPI print provided further evidence of price inflation being more persistent than had earlier been anticipated, with two of the Fed’s more hawkish officials suggesting that the case for larger 50bps hikes may be returning. The producer price index of final demand rose 0.7% m/m in January from -0.2% in December. On an annual basis this measure of PPI was up 6% in January, well above consensus expectations for a 5.4% y/y rise. There were rises on the month in both goods and services PPI. While there was a significant uptick in energy costs, which rose 5% m/m in January, PPI excluding the more volatile food, energy and trade components still increased by 0.6% m/m, above expectations for a 0.2% m/m rise.   

The latest US initial jobless claims continue to point to tightness in the labour market. Although initial claims fell only marginally to 194K in the week ending February 11, from 195K the week prior, they are still well below the 2019 pre-pandemic average of 218K. It is worth noting that continuing claims paint a slightly less sanguine picture, having risen in the week ending Feb 4th to just below their 2019 pre-pandemic level, suggesting that for those who have become unemployed it is starting to become more difficult to find a new position.      

US Housing starts fell for a 5th month in January, dropping -4.5% m/m, as high mortgage rates continue to depress demand for housing. On a seasonally adjusted annualized basis housing starts stood at 1.31mn in January, their lowest level since June 2020.

Today’s Economic Events and Data

  • 11:00 UK retail sales Jan: Forecast -0.3% m/m
  • 19:00 US Conference board leading index Jan: -0.3% m/m

Fixed Income

  • US Treasuries extended their losses for the week overnight in response to commentary from several Fed officials that show there is still support for large interest rate hikes. Loretta Mester from the Cleveland Fed said there was a “compelling economic case” for a 50bps hike while James Bullard from the St Louis Fed also supported a 50bps move. Neither Bullard or Mester vote on the FOMC this year.
  • Yields on the 2yr UST added about 1bps overnight to close at 4.64%, their highest level since November last year and are still rising in early trade today. The 10yr UST yield rose by almost 6bps to 3.8608%.
  • European bonds settled mixed with bunds barely lower with yields holding at around 2.472%. Gilt yields edged slightly higher, up 1bps at 3.494%.


  • Currency markets closed overnight with a general downward bias, including the dollar even on the back of the hawkish commentary from several Fed officials. EURUSD settled at 1.0674, down 0.1% while GBPUSD fell below the 1.20 level, closing down 0.3% at 1.1993. USDJPY moved in favour of the yen, the only notable gainer overnight, adding 0.2% to 133.94.
  • Commodity currencies closed weaker as a rule with USDCAD up by 0.5% to 1.3458 while AUDUSD dropped 0.3% to 0.6879 and NZDUSD fell 0.4% to 0.6257.
  • The dollar has gained in early trade today, erasing more of its year to date losses to trade up now since the start of 2023.


  • In East Asian markets, the Shanghai Composite lost 1.0% yesterday but the Hang Seng gained 0.8% and the Nikkei ended up 0.7%. In India, both the Sensex and the Nifty added 0.1%.
  • There were further record highs for the UK’s FTSE 100 yesterday as it added 0.2% to close above the 8,000 mark for the first time. The DAX and the CAC added 0.2% and 0.9% respectively but remain just off their early 2022 peaks still for now.
  • Locally, the DFM gained 0.2% while the ADX ended down 0.3%. The Tadawul lost 0.2% and Turkey’s Bist added a further 1.2% as it continues to gain following its post-earthquake reopening on Wednesday.
  • The bullish mood seen earlier in the day faded in US markets, as hawkish comments from James Bullard in particular weighed on sentiment. The Dow Jones, the S&P 500, and the NASDAQ dropped 1.3%, 1.4%, and 1.8% respectively.


  • Oil prices look set to close the week out on a soft footing, falling overnight by 0.3% in Brent markets to USD 85.14/b and by 0.1% in WTI to USD 78.49/b. Both contracts are extending losses by about 0.7% in trade today. Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, said that the OPEC+ production levels agreed in October would be maintained for the rest of the year, keeping a cautious stance on output while oil prices have failed to gain much upward traction.

Written By

Jeanne Walters Senior Economist

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