Flash PMI: the United Kingdom suffered a sharp contraction in activity in January
Contrary to the apparent upturn in economic activity in the eurozone in January, flash readings of the UK’s PMI (Purchasing Managers Index) showed on Tuesday that the economy contracted at its own pace the faster in two years.
Britain’s S&P Global composite PMI, which encompasses services and manufacturing, slipped to 47.8 in January from 49.0 in December, below a consensus forecast of 48.5 in a survey of Wall Street economists Log.
S&P Global said widespread strikes, staff shortages, export losses, the cost of living crisis and sharp increases in interest rates have all combined to squeeze economic activity.
Flash PMI: business activity in the euro zone returned to growth in January
The eurozone economy returned to modest growth in December, according to new flash PMI (Purchasing Managers Index) readings on Tuesday.
The S&P Global composite PMI for the euro zone, which includes manufacturing and services, came in at 50.2 in January, down from 49.3 in December and ahead of a consensus forecast of 49.8.
The index broke above the 50 mark, which separates expansion from contraction, for the first time since June.
The leading Eurozone 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 contraction territory.
Stocks on the move: Topdanmark up 3%, Ambu down 4%
Danish stocks were the most buoyant in either direction at the open on Tuesday.
Insurance company Topdanmark added 3.7% to top the Stoxx 600 after its fourth-quarter earnings report and proposed dividend, while the hospital equipment maker Ambu fell 4.6% after SEB cut stock to “sell” from “hold”.
El-Erian says Fed should hike 50 basis points, calls smaller increase a ‘mistake’
Much of the inflation spike may be in the past, but a move to a 25 basis point hike at the Federal Reserve’s upcoming policy meeting is a ‘mistake’, chief economic adviser says Allianz, Mohamed El-Erian.
“I’m in a very, very small camp that thinks they shouldn’t demote 25 basis points, they should do 50,” he told CNBC’s “Squawk Box” on Monday. “They should take advantage of this window of growth that we’re in, they should take advantage of the market situation 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 surge again if energy prices rise as China reopens.
El-Erian expects inflation to peak around 4%. This, he said, will put the Fed in a difficult position as to whether it should continue to crush the economy to reach 2%, or promise that level in the future and hope that investors can tolerate stability. from 3% to 4% in the shorter term.
“That’s probably the best result,” he said of the latter.
— Samantha Subin
CNBC Pro: Wall Street is excited about Chinese tech — and loves a mega-cap stock
After more than 2 years of regulatory repression and a pandemic-induced crisis, Chinese tech names are back on Wall Street’s radar, with one stock in particular standing out as the top pick for many.
Pro subscribers can learn more here.
— Zavier Ong
Fed will likely discuss when to halt hikes next week, Journal report says
Next week, Federal Reserve officials will almost certainly approve of another deceleration in interest rate hikes while discussing when to halt hikes altogether, according to a Wall Street Journal report.
The Federal Open Market Committee responsible for setting rates is due to meet on January 1. 31-Feb. 1, with markets pricing a nearly 100% chance of a quarter-point hike in the central bank’s benchmark rate. More importantly, Fed Governor Christopher Waller said on Friday he considered a 0.25 percentage point hike 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 from policymakers, said the slowing pace of increases could provide an opportunity to assess the impact the increases are having so far on the economy. A series of rate hikes starting in March 2022 resulted in increases of 4.25 percentage points.
Market prices are currently pointing to quarter-point increases in the next two meetings, a period of inaction, and then down to a half-point reduction by the end of 2023, according to data from the CME group.
However, several officials, including Governor Lael Brainard and New York Fed President John Williams, have used the phrase “staying the course” to describe the future policy path.
European markets: here are the opening calls
European markets are heading for a positive open on Tuesday ahead of flash PMI (Purchasing Managers Index) data for the Eurozone in January.
The United Kingdom FTSE100 the index is expected to open 10 points higher at 7,801, Germany DAX 18 points more at 15,122, France CAC up 12 points to 7,049 and Italy MIB FTSE up 81 points to 25,945, according to IG data.
There are no major earnings releases on Tuesday.