UK Retail Sales Fall in Setback for Struggling Economy

Forex

Economic

Summary:

(Jan 17): UK retail sales posted a surprise fall around last month’s crucial Christmas period in a fresh setback for the Labour

(Jan 17): UK retail sales posted a surprise fall around last month’s crucial Christmas period in a fresh setback for the Labour government’s hopes of reviving economic growth.

The volume of goods sold in stores and online dropped 0.3% in December following a 0.1% gain in November that was revised down from 0.2%, the Office for National Statistics. Economists were expecting a 0.4% increase for last month.

The figures add to anecdotal evidence of a disappointing Christmas for retailers. Despite growing real incomes, households are in cautious mood amid warnings of an inflation resurgence and expectations of slower declines in borrowing costs.

“This was driven by a very poor month for food sales, which sank to their lowest level since 2013, with supermarkets particularly affected,” said Hannah Finselbach, ONS senior statistician.

Sluggish economy

Economists are becoming increasingly worried that the UK is facing a stagflationary trap where high inflation meets low growth to inflict a large amount of pain on businesses and households. Separate GDP data Thursday showed output barely moved since Labour took office in July, while inflation is set to continue to overshoot the Bank of England’s 2% target this year due to higher energy costs.

Retail sales fell 0.8% in the fourth quarter as October’s number was also revised down, which has the effect of knocking 0.04 percentage points off GDP. It was the steepest quarterly fall since the fourth quarter of 2023, when sales also fell 0.8%.

Concerns over UK growth have put pressure on gilts since the start of the year, casting doubt over the sustainability of the Chancellor of the Exchequer Rachel Reeves’ spending plans. Reeves has said she needs faster growth in order to lift tax receipts and fund investment in public services and infrastructure.

The ONS data showed that sales have risen in only three of the six months since Labour came to power. The level of retail sales is just 0.1% higher than in June.

The figures were adjusted to capture the impact of Black Friday, which fell in the ONS’ December reporting period in 2024 rather than in November. When removing the adjustment, sales grew more strongly than in previous December reports, the statistics body said.

While retail sales are 3.6% above levels seen last year, they’re haven’t recovered to their pre-Covid values.

Source: Theedgemarkets

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Economic

Forex

USD: Inflation still a headache

FX markets may enter holding mode today as the US data flow slows and some wait-and-see approach prevails ahead of Monday’s presidential inauguration.

The perception at the end of a busy week in macro news is that the optimism around a month-on-month slowdown in core inflation is cautious at best. The inherently forward-looking markets are factoring in Trump’s inflationary policies from a starting point that is already significantly above the target. So, despite stretched positioning and short-term overvaluation, the dollar continues to dodge true catalysts for a correction.

Yesterday’s Senate hearing of Treasury Secretary nominee Scott Bessent was not particularly eventful for markets. He predictably stressed the need to cut discretionary government spending – a flagship Trump policy – but did not sound as hawkish as Trump on delivering new tax cuts. In the first Trump administration, cabinet members often had to temper the President’s strong statements, and we can probably expect Bessent to deliver more balanced remarks on fiscal policy, considering the impeding debt constraints.

Today’s calendar includes housing starts and industrial production in the US, which are both expected on the strong side. The Federal Reserve enters the communication blackout period tomorrow ahead of the 29 January meeting. We expect some stabilisation in most dollar crosses today.

In other markets, China's fourth quarter 2024 GDP surged to 5.4% year-on-year, up from 4.6% YoY and marking the highest level of the year, and the fastest YoY growth of any quarter since 2Q23. This was also a much more impressive reading given that 2Q23 benefited heavily from a favourable base effect. The fourth quarter growth level was a significant beat and moving the full-year growth back to 5.0% will put to rest any potential debate on whether or not a lower growth level would have been sufficient to fulfil the "around 5%" growth target.

EUR: Risk premium here to stay

EUR/USD appears to have found a short-term anchor at the 1.0300 handle. That is a level that embeds a 2.5-3% risk premium (i.e. undervaluation), which we suspect will not be materially trimmed until more clarity on Trump’s protectionism policy emerges.

That said, that stretched valuation and the latest speculative net short EUR/USD positioning at 11% of open interest (CFTC data) makes us lean against another big leg lower in the pair. That, in fact, may require some big USD-positive headlines from Trump on Monday.

Today’s eurozone calendar includes the release of final CPI data for December, with the core measure expected to be confirmed at 2.7%. There has been no shift to a less dovish tone by the European Central Bank from the already dovish December meeting (the minutes were released yesterday), even after a tick higher in inflation; and we can expect monetary policy to remain a net negative factor for the euro at least in the coming weeks. We expect EUR/USD stability around 1.0300 today.

CAD: Carney’s leadership bid not a game changer

Mark Carney formally announced yesterday that he will run for Canada’s Liberal Party leadership to replace Justin Trudeau. The consensus appears to be that the leadership contest will be a close one between Carney and former finance minister Chrystia Freeland. Recent opinion polls show Carney has a small advantage over Freeland, while betting markets give him a 70-30 lead.

In our view, Carney remains the more market-friendly alternative, considering Freeland’s conflicting terms with Trump on trade. That said, it is likely that the new Liberal leader will face a parliament no-confidence vote and the probability of elections before the October statutory deadline remains high. The Conservative party, led by Pierre Poilievre, holds a huge lead in the polls, so we believe Poilievre's plan for the US-Canada trade relationship may be more relevant for Canadian markets than that of the new Liberal leader.

For now, the loonie remains in limbo. USD/CAD has been flat since the start of the year, and still embedding a 3% risk premium associated with the risk of Trump’s tariffs – according to our short-term fair value model. Even if unilateral 25% tariffs on Canada don’t materialise, smaller universal tariffs would still asymmetrically damage the economy of the main US trade partners. In 2023, exports to the US accounted for roughly 20% of Canadian GDP.

To rebound at this stage, CAD requires more reports suggesting a lighter-touch approach by Trump on trade. Barring that, we expect the risk premium to linger and some support around 1.430 in USD/CAD.

PLN: Waiting for hawkish press conference

As expected, the National Bank of Poland left rates unchanged at 5.75% in line with market expectations. The central bank's statement did not see much change from December, but the sentence regarding strong FX helping to dampen inflation disappeared. This change could have two explanations - the zloty is no longer as strong in the NBP's view due to the depreciation against the dollar, which would imply a hawkish leaning, or inflation is no longer such a problem given the weaker numbers this week. We lean towards the first option and also see the statement as more hawkish in the detail of the description of inflation risks. So overall we expect a hawkish press conference again today indicating rather late rate cuts than earlier.

Contrary to our view, the market reacted more dovishly although this was already the direction of travel before the NBP statement was released. The rally in core rates and also lower core inflation helped rates move down while slightly weakening the PLN. However, the drop in rates and more dovish pricing gives room for a sell-off in rates again if our expectations from today's press conference are confirmed. Therefore, our view on PLN remains unchanged. Although the current rates point to a weaker PLN in the 4.280-290 EUR/PLN range, we believe that a hawkish NBP will keep the currency pair in the 4.260-4.270 range and could potentially retest the lower boundary. However, as we discussed earlier, the NBP has been hard to predict in recent months and our conviction is low.

Source:ING

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Owen Li

Economic

Market Overview

Geopolitical tensions and global supply disruptions are driving volatility in energy markets. Crude oil prices rose for a second session as U.S. crude inventories fell by 2 million barrels—double market expectations—due to reduced imports and rising exports.

The tightened supply outlook is compounded by broader sanctions on Russian oil, which have increased shipping costs and left major buyers scrambling for alternatives.

Meanwhile, OPEC+ remains cautious about boosting production despite recent price rallies. On the demand side, seasonal travel in India and China is expected to lift global consumption, while easing U.S. inflation may spur economic activity and energy demand.

Natural Gas Price Forecast

Natural Gas (NG) Price Chart

Natural Gas (NG) prices are trading at $3.70, down 1.58% as bearish pressure intensifies. The commodity has slipped below its pivot point at $3.87, signaling a continuation of the recent downward trend. Immediate support is seen at $3.55, with a deeper level at $3.33, aligning with the 200-day EMA of $3.38. On the upside, resistance at $4.14 and $4.35 remains critical to regaining bullish momentum.

The 50-day EMA, currently at $3.83, has shifted to act as a short-term resistance, adding to the bearish sentiment. The broader trend reflects caution, with natural gas struggling to maintain upward traction amid weak demand expectations.

For traders, a sustained move above $3.87 could revive bullish sentiment, targeting $4.14. However, failure to hold current levels could deepen the decline toward the $3.33 support zone, warranting close monitoring for further weakness.

WTI Oil Price Forecast

WTI Price Chart

US crude oil (USOIL) is trading at $80.07, down 0.47%, as prices hover near the pivot point at $79.09. The bullish trend remains intact above this key level, supported by the 50-day EMA at $76.35, indicating short-term strength. Immediate resistance lies at $80.68, with further upside targets at $82.14.

However, failure to hold above $79.09 could open the door for a decline toward $77.17, with deeper support at $75.40.

Traders should monitor the $79.09 pivot for directional clarity, as a sustained move above this level could reinforce bullish momentum, while a break below it may lead to increased selling pressure.

Brent Oil Price Forecast

Brent Price Chart

UK crude oil (UKOIL) is trading at $81.99, down 0.30%, as it consolidates near the pivot point at $81.43. The price remains in a bullish channel, supported by the 50-day EMA at $78.66, indicating ongoing upward momentum. Immediate resistance is seen at $82.61, with the next target at $83.45.

On the downside, immediate support lies at $80.44, with deeper support at $79.58 if selling pressure intensifies. The market bias remains bullish above $81.43, driven by supply constraints and resilient demand expectations.

However, cautious optimism prevails as overbought conditions near resistance levels could prompt short-term pullbacks. Traders should closely watch the $81.43 pivot for directional clarity, as a move below this level could shift sentiment and invite sharper declines.

Source：ING Think

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Owen Li

Economic

For the year, job growth totaled 2.2 million, down from 2023’s 3.0 million, but a still solid year of hiring.

Private payrolls rose 223k – up from November’s 182k – with the largest gains seen in health care & social assistance (+69.5k), leisure & hospitality (+43k), and professional & business services (+28k). The public sector added 33k new positions last month.

In the household survey, civilian employment surged by 478k – more than reversing November’s sharp pullback – while the labor force grew by a smaller 243k, pushing the unemployment rate 0.1 percentage points lower to 4.1%. The labor force participation rate held steady at 62.5%.

The household survey figures for December also included the usual updated seasonal adjustment factors. However, there was no discernable impact on monthly unemployment rate readings for 2024.

Average hourly earnings (AHE) rose 0.3% month-on-month (m/m), a tick lower than November’s gain. On a twelve-month basis, AHE were up 3.9% (also a tick lower than November). Aggregate weekly hours rose 0.2% m/m, up from November’s downwardly revised reading of 0.1% m/m (previously 0.4% m/m).

Key Implications

Non-farm payrolls end 2024 on a solid footing, coming in well above nearly all surveyed economist forecasts in Bloomberg. Smoothing through the recent volatility, job growth averaged 170k per-month in the fourth quarter, down from Q4-2023’s monthly average of 212k. Meanwhile, the unemployment rose by 0.3 percentage points last year, but remains low at 4.1%.

There were virtually no signs underlying weakness in the labor market in this morning’s employment report. And with progress on the inflation front showing signs of stalling in recent months, Fed officials have all the evidence they need to slow the pace of rate cuts. We still a view a March cut as likely (Fed futures are currently pricing a less than 25% probability for a March cut), though the next few months of data will be critical in shaping the final decision.

Source:CNBC

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Justin

Economic

Teenagers suffering from anxiety or depression are less likely to enter the workforce as young adults, and more likely to earn lower pay when they do, researchers reported in a study published Thursday in the journal, PLOS Medicine.

The economic impact is so great that $52 billion in U.S. budget savings could occur over 10 years if efforts are made to help even 10% of teens at risk for stress, researchers estimate.

"Our new research finds that, at the scale of the United States economy, improvements in adolescent mental health may bring many billions of dollars of federal budget benefits over ten years, potentially offsetting the costs of policy change that could cover critical services for young people," lead researcher Nathaniel Counts, chief policy officer for The Kennedy Forum in Brigantine, N.J., said in a news release.

For the new study, researchers analyzed data on more than 3,300 participants in an ongoing Bureau of Labor Statistics study that is following children as they progress into adulthood.

The research team analyzed data gathered in 2000, when participants were 15 to 17, to check their mental health as teenagers. They looked specifically at questions that assessed anxiety and depression among the teens.

Researchers then looked at data gathered a decade later, in 2010, to see how the teens' earlier mental health affected their job prospects as young adults.

Results show that 6% fewer people were holding down a job as a young adult if they suffered from clinically significant anxiety or depression as a teenager.

Young adults who were stressed as teens also earned nearly $5,700 less in annual wages, researchers found.

The researchers then estimated the potential impact on the U.S. budget if a hypothetical policy extended mental health preventive care to 10% of teens at risk of stress.

The added productivity from those teens who avoided stress amounted to $52 billion in additional federal revenue over 10 years.

The results support efforts like a 2023 law passed by Congress investing $60 million annually in U.S. mental health care, researchers said. That policy aims to expand access to mental health care at a rate of about 500 people for every $1 million spent.

"To reach 5 million people (roughly 25% of the adolescent population), the legislature would need to expand this program and invest at least $10 billion," the research team wrote.

"Given the estimated savings of $52 billion over 10 years if the interventions can reach 10% of adolescents who would otherwise go on to develop depression, investments in adolescent mental health at scale will plausibly provide significant offsetting returns," they concluded.

Source:By Dennis Thompson, HealthDay News

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Alex

Economic

On Jan. 7, 2025, the region’s strongest Santa Ana wind event in more than 10 years ignited wildfires at several locations, forcing more than 150,000 people to evacuate and burning more than 35,000 acres. As the largest fires continue to burn, new fires have sparked across the region. At least 24 people have died and many remain missing and the lives of more than 500,000 people have been disrupted by the disaster.

“My heart aches for my home state and all of the people impacted by these devastating fires,” said Acting Secretary of Labor Julie Su. “Working people are often the most severely impacted in cases of widespread devastation, which is why I am so glad that the Biden-Harris administration and the U.S. Department of Labor can partner with the state of California and be there to help in this awful time. Californians need to know that their federal government, working in lock step with state government, stands with them. This Dislocated Worker Grant will help to support California and its incredible, vibrant, diverse people as they begin what will be a long recovery.”

The Federal Emergency Management Agency issued a disaster declaration on Jan. 8, 2025, enabling the state to request federal assistance for recovery efforts in Los Angeles County.

The National Dislocated Worker Grant – supported by the Workforce Innovation and Opportunity Act of 2014 – allows the California Employment Development Department to provide people with temporary disaster-relief jobs and the delivery of humanitarian assistance to address immediate, basic needs for those displaced by the wildfires. The funding also enables the state to provide training and services to individuals in the affected communities.

The department’s Employment and Training Administration oversees National Dislocated Worker Grants, which expand the service capacity of dislocated worker programs at the state and local levels by providing funding assistance in response to large, unexpected economic events that lead to significant job losses.

Source：U.S. Department of Labor

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Justin

Economic

Stigma and Realized Stigma

Empirically, stigma may be identified by the presence of a spread over the discount window primary credit rate that a bank is willing to pay to avoid borrowing at the window. However, a bank’s willingness to pay is not observable. Instead, we observe “realized stigma:” how much more a bank actually pays above the primary credit rate to borrow. Realized stigma and stigma are not equivalent. Realized stigma provides a lower bound on the extent of stigma. In particular, even if a bank does not actually pay a premium (for instance, because it borrows on the interbank market below the primary credit rate, thus implying no realized stigma), it may have been willing to do so ex-ante.

Evidence of realized stigma, nevertheless, is informative: it signifies that stigma is indeed present. In our paper, we follow the economic literature and measure realized stigma by looking at transactions in the federal funds market, the over-the-counter overnight U.S. interbank market for funds held by banks at the Fed; we interpret a bank purchasing federal funds above the primary credit rate as evidence of stigma.

Realized Stigma since 2014

The chart below plots the proportion of federal funds volume purchased above the primary credit rate between 2014 and July 2024. We find little evidence of stigma before the COVID-19 pandemic, with less than 0.1 percent of federal funds transactions purchased above the primary credit rate.

The onset of the pandemic saw a sharp increase in realized stigma. Between March 11 and March 31, 2020, 28 percent of federal funds borrowing occurred above the primary credit rate, with every type of bank showing evidence of realized stigma.

Evidence of stigma faded in the months that followed the pandemic but resurfaced several months before the 2023 banking turmoil. Between July 2022 and March 2023, an increasing share of federal funds (15 percent, on average) was purchased by domestic banks above the primary credit rate. Surprisingly, realized stigma did not surge after the failure of Silicon Valley Bank (SVB) on March 9, 2023. In fact, the post-pandemic peak in realized stigma happened in December 2022. Nevertheless, the average size of the stigma spread (the spread paid over the discount window rate) more than doubled, from 10 basis points (bps) in the pre-banking turmoil period to 22 bps in the weeks that followed the failure of SVB.

Note that realized stigma is common in troubled banks. Banks that showed signs of stigma between 2014 and 2024 were three times more likely to have failed over the same period. Moreover, out of the twenty-two banks that suffered a run during the 2023 banking turmoil, nine had experienced realized stigma in the preceding ninety-day period.

We also find that realized stigma is not due to a lack of prepositioned collateral at the discount window; that is, it is not due to banks’ lack of operational readiness. In particular, a bank that purchased federal funds above the discount window rate during the 2023 banking turmoil could have obtained almost 80 percent of those funds (on average) from the discount window, based on the amount of collateral it had prepositioned at the discount window.

The Determinants of Realized Stigma

To better understand the determinants of realized stigma, we conduct a statistical analysis. The results reveal a highly statistically and economically significant persistence in realized stigma: banks that borrow federal funds above the discount window rate are about 40 percent more likely to do so again the following month. Consistent with stigma, banks that do not visit the discount window are significantly more likely to show subsequent realized stigma.

Moreover, a bank is significantly more likely to display realized stigma after increasing in size, becoming financially weaker (that is, having a lower ratio of U.S. Treasury securities or a higher ratio of held-to-maturity losses), or when its share of alternative funding sources declines (lower Federal Home Loan Bank borrowing). Looking at the post-June 2022 period, when stigma became prevalent, some of these determinants changed; in particular, banks with lower cash holdings and higher uninsured deposit liabilities became more likely to exhibit realized stigma.

Concluding Remarks

In this post, we present evidence of discount window stigma in the years since the global financial crisis using transaction-level data from the federal funds market. Evidence of realized stigma is particularly strong around periods of financial market turmoil, such as during the COVID-19 pandemic and the March 2023 banking turmoil. Our results suggest that discount window stigma is still an issue, potentially limiting the discount window’s ability to ameliorate financial stability in times of turmoil.

Source:Olivier Armantier, Marco Cipriani, and Asani Sarkar

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UK Retail Sales Fall in Setback for Struggling Economy

Sluggish economy

Source: Theedgemarkets

FX Daily: All Eyes on Monday’s Inauguration

USD: Inflation still a headache

EUR: Risk premium here to stay

CAD: Carney’s leadership bid not a game changer

PLN: Waiting for hawkish press conference

Source:ING

Natural Gas And Oil Forecast: Is Opec+ Caution Supporting Brent’s Bullish Outlook?

Market Overview

Natural Gas Price Forecast

Natural Gas (NG) Price Chart

WTI Oil Price Forecast

WTI Price Chart

Brent Oil Price Forecast

Brent Price Chart

Source：ING Think

Us Payrolls Surge In December And Unemployment Rate Ticks Down To 4.1%

Key Implications

Source:CNBC

Teen Stress Drags Down U.S. Economy, Study Concludes

Source:By Dennis Thompson, HealthDay News

US Department of Labor Approves Up to $10M in Initial Funding to Support Disaster Recovery, Response to California’s Continuing Wildfires

Source：U.S. Department of Labor

Discount Window Stigma After the Global Financial Crisis

Stigma and Realized Stigma

Realized Stigma since 2014

The Determinants of Realized Stigma

Concluding Remarks

Source:Olivier Armantier, Marco Cipriani, and Asani Sarkar

Risk Disclosure