Daily Market Outlook, January 11, 2023

Markets Marking Time Ahead of US Inflation Data
Investors remain upbeat but cautious ahead of tomorrow's US Inflation data. Asian equity markets once again picked up the positivity baton from Wall Street, with Asian equities pushing six-month highs, regional risk-on sentiment remains supported by the promise of a rebound in Chinese growth metrics, driven by the re-opening story, however, some market participants are concerned how this re-opening trade may impact inflation in the region, but for now, the majority of investors are prepared to look past this concern and focus on the growth side of the ledger.
On the macro front, the World Bank has once again insisted on highlighting significant downside risks to the global economic growth outlook, cutting its 2023 global growth forecast from 3.4% to 1.7%. In the US yesterday, headline risk from Fed Chair Powell's speech was underwhelming, as he failed to make remarks regarding the future path of interest rates, although he did suggest that unpopular decisions may still be on the horizon for the US central bank.
The data calendar for the trading day ahead is scant, with no tier-one data of note in the UK, Europe, or the US, as such market watchers are firmly focused on tomorrow's CPI print, the bulls will hoping for further confirmation of a peak in inflation, drawing solace from recent indicators from both the Eurozone and the US that suggest peak inflation may well be in the rearview mirror, markets are looking for further declines in headline inflation buoyed by the recent retreat in energy prices, while core goods should also see declines as supply bottlenecks are finally resolving, the main concern for the bullish thesis is services inflation which has proved somewhat more stubbornly elevated, given the continued tightness in the employment market. Ahead of the US inflation release, China is expected to announce PPI and CPI inflation data overnight, declines in recent months have been well received, with both metrics printing back-to-back monthly declines into the back end of 2022, the key question for markets now will be the impact of the removal of Covid restrictions and whether or not this will cause a lift in inflation expectations.
Markets-wise earnings releases from the UK retail sector will be parsed by investors, as hopes that the Christmas commercial season won't prove to be as disastrous as many market watchers had thought heading into the festive period, however, the major concern for investors will be the 2023 outlook for the sector, as consumer demand is expected to decline in the first half of the year as the cost of living crisis and continues to bite. Bond yields in both the UK and the US remained supported yesterday, although they have softened overnight, Sterling remains supported against the greenback holding above the pivotal 1.21 level, although GBP remains sub 0.8850 against the Euro.