We're barely into February and financial markets are already starting to walk back the dominant new year narrative.

Not unlike 2021, when a cranky first quarter gave way to more serene year for all assets, there are twitches of a rethink after just a month of 2022. Detecting some waver in what at first looked like a draconian anti-inflation shift across all major central banks, investors are wary it may all have been a bit overdone.

In the space of just six weeks - marked by alarming inflation prints, a shift in central bank rhetoric and only a glancing economic blow from the Omicron wave of COVID - interest rate markets went from pricing just two U.S. Federal Reserve rate hikes this year to more than five. (Reuters - Continue Reading)

A lot has happened since the European Central Bank Governing Council last met to decide what’s best for Eurozone monetary policy.

After the lender said in mid-December that it would wind down its EUR 1.85tn Pandemic Emergency Purchase Programme (PEPP) this quarter – which it then hedged by promising to increase other asset buys – central banks around the world have either started, continued, or announced the beginning of their rate hike cycle.

For example, the Bank of England is poised to raise rates on Thursday, the second such move since December. On the pandemic front, the Omicron variant has caused record infections in a number of European countries. And in macroeconomics, Eurozone Q4 growth was weaker than expected after German GDP contracted, and headline inflation in the single-currency area hit 5.1%, a third straight record. Energy prices remain high. And oh, and there’s something happening on the Russia-Ukraine border….

What does all this mean for ECB monetary policy? Not much, at least for the moment. (Live Squawk - Continue Reading)

Headline consumer price growth in the Eurozone rose unexpectedly last month with a surprise surge in Italian inflation and soaring energy prices, according to data released Thursday.

The EU said Wednesday that its preliminary estimate for inflation in the euro-area increased to a record 5.1% in January from the previous all-time high of 5.0% reported in December. Last month’s rate was far above the market estimate of 4.4%.

Frederik Ducrozet, senior European economist at Pictet Wealth Management, tweeted that Wednesday’s announcement was the “largest upside surprise in the history of euro-area flash HICP inflation releases.” (LiveSquawk - Continue Reading)

As the first of the major central banks to move away from pandemic era emergency interest rates, analysts say the Bank of England risks being left behind if it chooses to keep rates on hold this week. However, all evidence suggests the Monetary Policy Committee is poised to hike again on 3 February.

The bank is scheduled to announce its latest monetary policy decision at midday local time on Thursday, and analysts anticipate that policymakers will vote unanimously to raise rates by 25 basis points, taking rates to 0.50%. Last month, the committee voted by a majority of 8-1 to hike rates 15bps, returning the main rate back to the March 2020 level.

Nomura’s George Buckley said, “On that issue, there seems to be market consensus, with sterling overnight forward rates pricing in around 23bp of the quarter-point rate hike at the February meeting (see Figure 1). And indeed, the limited MPC comments since the bank’s December meeting have not done anything to push back against this market pricing, raising our confidence that the bank will deliver on a quarter-point hike.” (LiveSquawk - Continue Reading)