Flash PMI: UK suffers sharp contraction in activity in January
In contrast to the apparent revival of euro zone business activity in January, preliminary readings for the UK’s PMI (purchasing managers’ index) on Tuesday showed the economy contracting at its strongest pace in two years.
The S&P Global UK Composite PMI, which covers services and manufacturing, fell to 47.8 in January from 49.0 in December, below the consensus forecast of 48.5 in a Wall Street Journal survey of economists.
S&P Global said the widespread strike, staff shortages, export losses, the cost-of-living crisis and sharp interest rate hikes combined to dampen economic activity.
Flash PMI: Eurozone business activity picks up again in January
The euro zone economy returned to modest growth in December, according to fresh preliminary readings from the PMI (purchasing managers’ index) on Tuesday.
The S&P Global Eurozone Composite PMI, which covers manufacturing and services activity, came in at 50.2 in January, up from 49.3 in December and ahead of a consensus forecast of 49.8.
The index passed the 50 mark, which separates expansion from contraction, for the first time since June.
The euro zone’s dominant services sector index rose to 50.7 from 49.8 in December, while the manufacturing index improved to 48.8 from 47.8, also beating forecasts but remaining in contractionary territory.
Stocks on the Move: Topdanmark Up 3%, Ambu Down 4%
Danish stocks moved the most in both directions at the open on Tuesday.
Insurance company Topdanmark added 3.7% to lead the Stoxx 600 after its fourth-quarter earnings report and dividend proposal, while hospital equipment maker ambu fell 4.6% after SEB downgraded the shares to “sell” from “hold”.
El-Erian says the Fed should raise 50 basis points, calls a smaller increase a ‘mistake’
Rising inflation may seem like a big deal in the past, but a switch to a 25 basis point increase at the Federal Reserve’s next policy meeting is a “mistake,” according to Allianz chief economic adviser Mohamed El. -Erian.
“I’m in a very, very small field that thinks they shouldn’t slow down to 25 basis points, they should do 50,” he told CNBC’s “Squawk Box” Monday. “They should take advantage of this growth window that we’re in, they should take advantage of where the market is and they should try to tighten financial conditions because I think we still have an inflation problem.”
Inflation, he said, has shifted from the goods sector to the services sector, but could very well resurface if energy prices rise as China reopens.
El-Erian expects inflation to stabilize around 4%. This, he said, will put the Fed in a difficult position as to whether to continue crushing the economy to reach 2%, or promise that level in the future and hope that investors can tolerate a constant 3% or 4% at short term.
“That’s probably the best result,” he said of the latter.
CNBC Pro: Wall Street Is Excited About Chinese Tech, And Loves A Mega-Cap Stock
After more than 2 years of regulatory crackdowns and a pandemic-induced recession, Chinese tech names are back on Wall Street’s radar, with one stock in particular standing out as the top pick for many.
Professional subscribers can read more here.
The Fed is likely to discuss next week when to stop the hikes, according to a Journal report
Federal Reserve officials are almost certain to approve another slowdown in interest rate hikes next week as they discuss when to stop the hikes altogether, according to a Wall Street Journal report.
The Federal Open Market Committee that sets rates will meet on January 1. 31-Feb. 1, with markets Price in almost 100% probability of a quarter point increase in the central bank’s reference rate. Most prominently, Fed Governor Christopher Waller said on Friday sees an increase of 0.25 percentage points as the preferred move for the next meeting.
However, Waller said he doesn’t think the Fed is done tightening yet, and several other central bankers in recent days have backed that idea.
The Journal report, citing public statements by policymakers, said the slowing in the pace of the increases could provide an opportunity to assess what impact the increases so far are having on the economy. A series of rate hikes started in March 2022 has resulted in increases of 4.25 percentage points.
Market prices currently indicate quarter-point gains over the next two meetings, a period of no action, and then as much as a half-point decline by the end of 2023, according to CME Group data.
However, several officials including Governor Lael Brainard and New York Fed President John Williams have used the expression “stay the course” to describe the path of future policy.
European markets: here are the opening calls
European markets are heading for a positive open on Tuesday ahead of preliminary PMI (purchasing managers’ index) data for the euro zone in January.
the United Kingdom FTSE 100 The index is expected to open 10 points higher at 7,801, the index of Germany DAX 18 points higher with 15,122, France ACC up 12 points to 7,049 and that of Italy FTSE MIB it rose 81 points to 25,945, according to IG data.
No major earnings releases on Tuesday.
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