March 02, 2023

Daily Report 02/03/2023

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The UK manufacturing PMI index was revised marginally higher to 49.3 from the flash reading of 49.2. Mortgage approvals amounted to 39,600 for January compared with expectations of 38,000 while the December figure was revised sharply higher to 40,500 from the previous reading of 35,600. Net lending increased to £4.1bn from £3.7bn with a surge in consumer credit growth which could indicate distressed borrowing or stronger consumer confidence. Bank of England Governor Bailey stated that he would advise caution in suggesting that the central bank was done with rate hikes or that further rate hikes were inevitable. He added that some further rate hikes could be appropriate, but nothing is decided and he reiterated that the bank is data dependent in decision making. There was a slight easing of interest rate expectations following Bailey’s comments which helped undermine Sterling. The positive impact of the EU-UK faded during the day and the UK currency posted steady losses with significant set selling.

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German unemployment increased 2,000 for February after a 15,000 decline previously, but compared with expectations of a 9,000 increase.  The Euro made headway in early Europe on Wednesday with further support from optimism that a rebound in the Chinese economy would help support Euro-Zone economy. German consumer prices increased 0.8% for February with the year-on-year increase unchanged at 8.7% and above consensus forecasts of 8.5%. The latest Euro-Zone data will be released on Thursday with expectations of a decline to 8.3% from 8.6%, but the whisper number is higher. Bundesbank President Nagel stated that significant increases in interest rates are necessary beyond the March increase. Markets are pricing around a 65% chance that the ECB will hike by 50 basis points in March with the remainder expecting a 75 basis-point hike.

Key Data

10.00 Core Harmonised Index of Consumer Prices (YoY) (Feb) Exp. 5.3% Prev. 5.3%
10.00 Harmonised Index of Consumer Prices (YoY) (Feb) Exp. 8.2% Prev. 8.6%

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The US ISM manufacturing index increased marginally to 47.7 for February from 47.4 the previous month, but slightly below consensus forecasts of 48.0 and remained in contraction territory for the fourth successive month. New orders and production also remained in contraction for the month and there was a small decline in employment for the month. The prices index moved back into positive territory with a reading of 51.3 from 44.5 previously and stronger than expected. Although the US data was mixed, the prices component caused some concern with Treasuries losing ground. Minneapolis Fed President Kashkari reiterated inflation concerns and, although he stated that he was open-minded about a 25 or 50 basis-point rate hike in March, he stated that he was leaning towards raising the policy path from December’s level. Atlanta head Bostic stated that he expects rates will have to increase to 5.00-5.25% and stay there well into 2024. Higher yields continued to underpin the dollar.

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