Sterling was unable to gain support from the higher than expected UK inflation data, especially as markets have already priced in a more substantial tightening of monetary policy by the Bank of England. In his fiscal statement, Chancellor Sunak announced a 5p per litre reduction in fuel duty and also announced a substantial increase in the National Insurance threshold of £3,000, but there were no other major measures to alleviate the immediate stresses on disposable income. The OBR downgraded the 2022 outlook substantially with GDP seen increasing 3.8% compared with 6.0% previously. For the following two years, forecasts are now 1.8% and 2.1% respectively. Given high inflation, the OBR also stated that real living standards are set to decline 2.3% for 2022/23, the sharpest decline on record. Markets had been expecting more substantial near-term relief measures which caused some further unease over the near-term outlook.
Key Data
9.30 Markit Services PMI (Mar) Exp. 58 Prev. 60.5
The Euro was unable to make headway ahead of Wednesday’s New York open with further unease over the Euro-zone outlook. The IFO raised its estimates of German inflation to 5.1-6.1% for 2022 from the 3.3% forecast in December, emphasising the difficulties for the ECB in setting policy. The Euro was also undermined by a fresh increase in energy prices during the day with Brent crude advancing to 2-week highs near $115 p/b. There was no evidence that peace talks between Russia and Ukraine were making any headway which maintained unease over euro-zone economic trends. Euro-zone consumer confidence dipped sharply to -18.7 for March from -8.8 previously which was below expectations of -13.0 and the weakest reading since May 2020.
Key Data
8.30 German Markit Manufacturing PMI (Mar) Exp. 55.8 Prev. 58.4
8.30 German PMI Composite (Mar) Exp. 53.7 Prev. 55.6
9.00 Markit PMI Composite (Mar) Exp. 53.9 Prev. 55.5
US new home sales declined to an annual rate of 772,000 for February from 788,000 previously and below consensus forecasts of 810,000 with concerns that higher mortgage rates would sap demand. US equity futures lost ground ahead of the New York open and Treasuries posted net gains with the 10-year yield retreating to near 2.35%. Cleveland Fed President Mester stated reiterated that frontloading interest rate hikes would better position policy going forward and that the Fed needed to make aggressive rate hikes earlier than later while she thought it would be necessary to do some 50 basis-point moves this year. San Francisco head Daly also commented that the central bank is prepared to do whatever it takes to get price stability. She considers a neutral rate is around 2.5% and rates may need to go slightly above this level. St Louis Fed President Bullard stated that the central bank can run down the balance sheet faster than last time.
Key Data
12.30 Durable Goods Orders (Feb) Exp. -0.5% Prev. 1.6%
12.30 Nondefense Capital Goods Orders ex Aircraft (Feb) Exp. 0.5% Prev. 0.9%