Morning Brief – UK CPI up next

Markets are still enjoying the effects of the weaker US CPI number on Wednesday as traders await the next major event, which is the FED December meeting.

Asian stocks enjoyed strong gains as do US futures in early Wednesday trade, while the EUR, GBP, AUD, NZD, and Swiss Franc currencies continue to hold onto gains against the buck.

Data during the Asian session showed that industrial production in Japan declined by 3.2 percent month-over-month in October 2022, compared with flash data of a 2.6 percent drop and after a final 1.7 percent fall a month earlier.

This was the second straight month of decrease in industrial output, mainly weighed down by production machinery. On a yearly basis, industrial output grew by 3.0 percent in October, the least in three months, much softer than a 9.6 percent gain in September. 

On a more upbeat note, Morgan Stanley has raised its China GDP forecast for 2023 to 5.4% from 5%. Analysts at the bank note policy easing and quick reopening moves as won factors to boost economic growth.

They state that “Investor positioning in China’s assets is still low and this recovery is not fully priced in equity and FX markets” and they “expect that with COVID reopening a rebound in activity will come earlier than expected”.

Markets also look ahead to the mornings main event, which is the release of UK CPI. This could be big for the GBPUSD pair as it lingers close to the 1.2400 handle.

French bank Société Générale has said that “Despite a continued rise in core and food inflation, negative base effects should allow a marginal reduction in headline inflation from 11.1% to 11.0% in November, although risks are tilted to the upside.”

Deutsche Bank also has their own take on today’s release. The German bank said that “We expect CPI to have slowed from 11.1% to 10.9%. If our forecasts are broadly on the mark, we have crossed the peak in inflation.”

The bank also adds that “And now, the next stage begins. We anticipate CPI will be over 8% YoY next year before landing around 6% in the fourth quarter.”