1. Bowing to Some ECB, Germany Demands, Fiscal Compact Toughened
After weakening some of the provisions that would form the rules in the Fiscal Compact sought by Euro-zone and EU nations, some tougher elements were put back in. The blueprint is to be discussed early next week when EU finance ministers meet.
From Bloomberg: The blueprint, to be discussed on Jan. 23 by EU finance ministers, will require a centralized correction mechanism to be triggered automatically in cases of significant deviations from a target structural deficit of 0.5 percent of gross domestic product, according to the draft dated Jan. 19 obtained by Bloomberg News.
The pact also empowers the European Commission to set deadlines for budgetary convergence. It gives the European Court of Justice the power to fine countries whose balanced-budget laws don't pass muster, while stopping short of the ECB's request that the court more broadly enforce the budget rules.
The latest draft is a return to German Chancellor Angela Merkel's drive to put stiffer rules on deficit control at the heart of efforts to combat the debt crisis.
2. UK Retail Sales Meet Expectations, Climb 0.6%
In the UK retail sales for December rebounded from a -0.5% reading in November to show a rise of 0.6% in December. That is a positive, but we will have to see how consumer spending evolves in the 1Q. Much of the gains were a result of sharp discounts ahead of the holidays. If consumer demand is soft going forward, it will impact growth and may cause the BOE to undertake further monetary easing.
From The Telegraph: Retail sales volumes grew 0.6pc month-on-month in December, the Office for National Statistics (ONS) said, up from a 0.5pc decline the previous month and City expectations of a 0.7pc rise.
Most of the increase in volumes was driven by clothing chains and department stores and came as store-price inflation dropped to its lowest rate for 16 months.
Brian Hillian of Societe General said: A little bit disappointing although the figures are close to market expectations ... We had early warning of that from the CPI numbers where the clothing and footwear component was showing deeper discounting than a year earlier. That's why I'm disappointed that the sales bounce has not been stronger.
Some economist said the figures raised hopes that the economy avoided contraction in the fourth quarter.
3. Canada's CPI Shows Strong Disinflation in December
We previewed the Canada CPI release yesterday and said that soft data could help the USD/CAD to hold its recent support level and pare some of its recent move in favor of the Canadian Dollar. Today's CPI data came in quite lower than expected, and if that becomes a trend can have a negative bearing going forward on the Loonie. Oil prices fell below $100 - another factor that should weigh on the CAD in today's session.
From Bloomberg: Consumer prices fell 0.6 percent in December, compared with an advance of 0.1 percent the previous month, Statistics Canada said today in Ottawa. The rate climbed 2.3 percent from a year earlier. The median forecast of 23 economists in a Bloomberg News survey was for a 0.2 percent monthly drop and a 2.7 percent annualized increase.
It was a below consensus release on CPI on both the core and the headline, said Camilla Sutton, head of currency strategy at Bank of Nova Scotia, by phone from Toronto. That implies there is decreasing inflationary pressure in Canada and takes pressure off the Bank of Canada.