Market Report : 04.01.23

Published: 04/01/2023 By Ecap

The Financial Times issued results of a survey of 101 economists, which painted a bleak picture of the UK’s economy in 2023: the vast majority expected the UK’s recession to be the longest and worst out of all G7 nations. Nevertheless, sterling saw mixed trade yesterday, making gains against weaker currencies while losing out to safer options. Looking ahead, we could see further movement with the release of lending data from the BoE, with the likes of consumer credit and mortgage data further highlighting the cost-of-living crisis.

European stock markets are expected to open higher this morning, continuing the positive start to the new year ahead of the release of more important economic data. The block’s single currency held its ground as German inflation come in below expectations yesterday, easing for a second month in a row in December due to falling energy prices. Looking forward, the economic numbers to digest today include French inflation figures and services PMI data for the Eurozone. Both of which, could provide hints on what ECB policymakers might decide at their next meeting.

The Fed has been closely scrutinizing the labour market as it tries to walk a tightrope between taming inflation without tipping the economy into a recession. Still, many on Wall Street expect a recession is coming at some point this year. Today’s economic calendar presents more employment numbers as well as the minutes from the last Federal Reserve meeting. Investors will likely comb through the report for any hints on what Fed policymakers are thinking on the direction of interest rates. The current market sentiment is expecting a quarter-percentage point increase in the benchmark rate at the Fed's next meeting, while divergence between doves and hawks regarding how high the terminal rate should go will also be of interest.