MNI US OPEN: Equity Drop Pauses For Breath

MNI: UK DEC CPI +0.5% M/M, +5.4% Y/Y

UK NOV CORE CPI +0.5% M/M, +4.2% Y/Y

MNI BRIEF: UK Inflation Soars To 30-Year High

UK consumer price inflation burst through expectations in December, rising by an annual rate of 5.4%, the fastest pace since March 1992. Analysts had been looking for a more moderate rise to 5.2% from 5.1% in November.

Food and non-alcoholic beverage prices accounted for much of the increase, adding 0.18 percentage points to the change in CPI, with eight of the nine major categories exerting upward pressure on the index. Motor prices actually shaved 0.04 percentage points from the change in CPI, despite hovering near historically-high levels, as highlighted in the MNI morning briefing. But that didn’t prevent core CPI from stretching to a new record high of 4.2% in December from 4.0% in November.

RPI surged to an annual pace of 7.5%, the highest rate since March of 1991, from 7.1% in November.

MNI: UK Dec OUTPUT PPI +0.3% M/M, +9.3% Y/Y

MNI BRIEF: UK December Factory Gate Inflation Eases

UK pipeline inflation eased in December, with output PPI rising by 9.3%, down from an upwardly revised 9.4% in November, with petroleum products accounting for much of the decline. Input PPI also retreated, falling to13.5% from 15.2% in November.

But the decline from November’s 14-year highs is unlikely to bring much relief to policy makers, with narrow measures of intermediate inflation remaining stubbornly high. Core output PPI rose by a record-high 8.7%, up from 8.2% in November.

Services PPI also accelerated, rising by 3.6% in the fourth quarter, the highest since records began in 2003, from 3.4% in the previous three months.

FIXED INCOME: UK Inflation sets the tone for core FI

The tone was set for the European session by the release of UK inflation data that was two tenths higher than consensus expectations at 5.4%Y/Y (5.1% previously). This drove SONIA futures down on the open, which pulled Bund futures lower and eventually saw gilt futures open at their lowest level since November 2018.

• Soon after the open, however, core fixed income retraced much of its losses although the gilt curve still shows yields across the curve up by about 4.5bp. Bunds have been dragged lower by gilts with the German curve bear steepening while the Treasury curve has seen smaller moves.
• Looking ahead we have four FPC members testifying before the Treasury Select Committee on the Financial Stability Report. Bailey and Cunliffe sit on both the FPC as well as the MPC so their current view on monpol could potentially be discussed.
• TY1 futures are down -0-5+ today at 127-06+ with 10y UST yields up 1.2bp at 1.887% and 2y yields up 1.5bp at 1.060%.
• Bund futures are down -0.38 today at 169.19 with 10y Bund yields up 2.5bp at 0.005% and Schatz yields up 1.0bp at -0.569%.
• Gilt futures are down -0.49 today at 122.28 with 10y yields up 4.7bp at 1.263% and 2y yields up 4.6bp at 0.905%.

FOREX: Dollar Giving Back Small Part of Week's Rally

• The dollar is giving back a small part of the Tuesday rally ahead of Wednesday's NY open, with EUR/USD recovering to test the 1.1350 level. Similarly, GBP/USD is back comfortably above 1.36 as price action mimics that seen in stock markets. The e-mini S&P has stabilised, having bottomed out at the 4535.50 low in Asia hours, to sit in minor positive territory at the crossover.
• Outperformers so far Wednesday are commodity- and growth-tied currencies, with NOK bouncing ahead of tomorrow's Norges Bank decision (no change to rates expected) and CAD on the front foot ahead of today's CPI read. USD/CAD sits below the 200-dma, with bears eyeing the 2022 low of 1.2454 for direction.
• The Fed remain in their media blackout period, keeping the speaker schedule relatively light and keeping focus on US housing starts/building permits data as well as Canadian CPI. Bailey and Cunliffe of the Bank of England testify on financial stability, while ECB's Holzmann also makes an appearance.

EQUITIES: Bouncing From Overnight Lows

• Asian markets closed mostly weaker: Japan's NIKKEI closed down 790.02 pts or -2.8% at 27467.23 and the TOPIX ended 58.66 pts lower or -2.97% at 1919.72. China's SHANGHAI closed down 11.734 pts or -0.33% at 3558.18 and the HANG SENG ended 15.07 pts higher or +0.06% at 24127.85.
• European stocks are a little higher, with the German Dax up 27.82 pts or +0.18% at 15779.27, FTSE 100 up 1.01 pts or +0.01% at 7558.35, CAC 40 up 37.98 pts or +0.53% at 7152.78 and Euro Stoxx 50 up 22.49 pts or +0.53% at 4273.37.
• U.S. futures have bounced a little, with the Dow Jones mini up 35 pts or +0.1% at 35294, S&P 500 mini up 7.5 pts or +0.16% at 4578.75, NASDAQ mini up 44.25 pts or +0.29% at 15250.25.

COMMODITIES: Oil Continues To Outperform

• WTI Crude up $1.08 or +1.26% at $86.45
• Natural Gas down $0.02 or -0.56% at $4.246
• Gold spot up $3.42 or +0.19% at $1816.54
• Copper up $4.5 or +1.03% at $443.35
• Silver up $0.27 or +1.15% at $23.7394
• Platinum up $8.32 or +0.84% at $991.21