Daily Market Outlook, January 19, 2023

Bad News Is Bad News After All...
Investors responded negatively to a round of weak US data yesterday, the trifecta of retail sales, industrial production and producers prices data left the markets with heightened concerns of imminent recession looming for the world's largest economy, Asian investors followed suit with Wall Street’s pullback, leading to a mixed trade in Asia overnight, the Nikkei was the underperformer as markets digested the BoJ announcement, many market participants took the view that Yield Curve Control removal is in the offing and the Yen reversed nearly all its losses, leading to the Nikkei shedding its post BoJ buoyancy trading lower on the day.
In the UK no tier one economic data of note today, UK investors focus shifts to tomorrow's retail sales and and consumer sentiment data, the data is expected to provide a further gauge as to the ongoing impact of the cost of living crisis on consumer finances, however, the winter World Cup is expected to provide a much needed boost to spending, however, it is likely that this will only be a short term relief for retailers as retail sales are expected to show a net decline for Q4 ‘22 confirming a sixth consecutive quarter of contraction, while consumer confidence may show modest improvement four the fourth month, consumer confidence is in general at historically depressed levels.
In the Eurozone investor focus will be squarely on ECB Chief Lagarde who appears at the World Economic Forum in Davos today, her speech is deemed to strike a cautious tone, with inflationary pressures remaining front and centre for the European Central Bank, ECB officials recent rhetoric as been hawkish, warning of restrictive monetary policy in play at least into the middle of this year, investors will parse Lagrade’s comments for additional confirmation of this view.
In the US Fed speakers will be closely monitored today, after yesterday's hawkish stance from Mester and Bullard, non voters in 2023, investors will pay close attention to Fed Vice Chair Lael Brainard, Brainard is thought to have a more dovish lean than her fellow non voters who spoke yesterday, markets will be keen to assess whether her support for continuing the ‘higher for longer’ approach is shifting to more of a plateau or pause strategy. On the data slate US housing starts numbers are expected to further decline, the general melee in the housing sector will likely have been compounded during the latest data period driven by significant storm disruption witnessed in the US before Christmas.
Markets-wise, investors pared exposure to risk assets yesterday, as concerns regarding a US recession took centre stage, with benchmark SP500 retreating over 1.5% on the day. Commodity markets were not immune to the derisking trade as WTICrude surrendered the $80 level to retest demand appetite at $78, Gold also lost some of its recent shine, however, the yellow metal remained supported above 1890 as bulls keep their sights on a test 1950, the Dollar continues to rotate around the 102 handle, as the Euro continues to cling to the 1.08 level on hawkish ECB rhetoric