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Week Ahead (30 January)

Tuesday, 31 January - Central Statistics Office to release data on Irish port traffic in Q3 2022

The Irish Central Statistics Office will release data on Q3 2022 port traffic on Tuesday.  Full year figures for 2021 show that roll on roll off (RoRo) ferry traffic from Irish to British ports dropped by 22% as a result of the impact of Brexit. This was due to decreased use of the so-called British "landbridge" transit route, which used the UK mainland as a bridge to transport goods to and from Ireland. At the same time, traffic between Ireland and continental Europe rose by 94% with former Chief Executive of Dublin Port, Eamonn O'Reilly, attributing this to the fact that businesses are now using direct ferry routes between Ireland and mainland Europe as a means to avoid potential delays and extra paperwork as a result of Brexit. 

So far in 2022, traffic that has passed through Dublin Port to and from Great Britain increased significantly when compared with 2021. The jump in movements followed the ending of pre-Brexit stockpiles and Covid-19 restrictions which had led to reduced volumes particularly in Q1 2021. Nevertheless, ferry traffic between Ireland and the EU has continued to hold on to huge increases seen in 2021, and has continued to grow throughout last year.

Wednesday, 1 February – EU regulation providing for ‘’temporary gas market correction mechanism’’ enters into force

On 19 December, the EU energy ministers reached an agreement on the Commission’s highly-contested gas price cap proposal, also known as a ‘’temporary gas market correction mechanism’’. The regulation will enter into force on 1 February 2023, lasting one year. It will apply to natural gas derivatives contracts at the TTF trading hub in the Netherlands, with a price cap triggered in case the month-ahead contract price exceeds €180 per megawatt hour (MWh) for three days.

Last Monday, the European Securities and Markets Authority (ESMA) warned that the cap could have a negative impact on the financial system, highlighting the risk that market players are likely to redirect trading to venues outside the EU or to bilateral trades, which will reduce liquidity in the markets.

Also last Monday, the EU energy regulator ACER highlighted some risks, including that the cap could prompt “widening price spreads” between trading hubs, move trading activities to private trades and outside the EU, decrease incentives to reduce gas demand and “marginally” reduce the ability to attract liquefied natural gas to the EU amid limited hedging opportunities. A full assessment from both ACER and ESMA is expected on 1 March. Following the entry into force on 1 February, the mechanism will apply as of 15 February. However, with prices well below the €180 required to trigger the mechanism, it remains to be seen whether the cap will be used.

Wednesday, 1 February – Eurostat flash inflation estimate

On Wednesday, Eurostat will publish flash inflation data for January 2023. In December, Eurozone inflation data eased to 9.2%, significantly lower than the 10.1 percent in November. The decrease was driven by energy price inflation which stood at 25.7% in December, compared with 34.9% in November.

Nevertheless, the ECB Governing Council, which meets the following day, appears more concerned by core inflation. Core inflation rose in December to 5.2% - up from 5% in November. ECB staff projections foresaw a core inflation rate of ~4% in December and ECB Chief Economist Philip Lane is understood to be focusing on core, rather than headline inflation.

Thursday, 2 February – ECB Governing Council to hold monetary policy meeting

On Thursday, the ECB Governing Council (GC) will meet to decide on the next steps to bring Eurozone inflation back towards the 2% target. A 50 basis points increase seems to be priced in although there is the possibility that the GC will seek a steeper increase.

Minutes of the December meeting show that a significant element of the GC expressed a preference for a 75 basis point increase. Instead, the ECB raised interest rates by 50 basis points, while pledging that rates would go up “significantly” further.

The minutes also showed that “some members” of the GC wanted to shrink the ECB’s government bond holdings under the APP program faster than by the €15 billion agreed upon. With Eurozone PMI data back above the 50 mark separating contraction from expansion - further communications around shrinking the balance sheet, along with at least a 50bp hike, is likely this week.

Thursday, 2 February – Bank of England to decide on interest rates

The Monetary Policy Committee of the Bank of England (BoE) will meet on Thursday, with expectations high that it will increase interest rates for the tenth meeting in succession to tackle persistent inflation.

On 15 December, the Bank announced its ninth consecutive rate hike, raising interest rates by 50 basis points to 3.5%. Inflation softened to 10.5% in December, down from 10.7% in November and after reaching a 41-year high of 11.1 in October. Earlier this month, UK Prime Minister Rishi Sunak pledged to halve UK headline inflation ‘’to ease the cost of living and give people financial security’’.

However, inflation is still more than five times higher than the BoE’s declared target rate of 2%. Hence, it is widely expected that the Bank will opt for another rate hike of 50 basis points this week to 4%, which would be the highest rate since 2008. Analysts estimate that BoE rates could peak at 4.5% in Q2 2023.

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