March 07, 2023

Daily Report 07/03/2023

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The UK PMI construction index strengthened to a 9-month high of 54.6 for February from 48.4 the previous month and well above consensus forecasts of 49.1. Overall business confidence continued to recover from the 31-month lows recorded in December. There was a further easing of supply-side difficulties for the month while upward pressure on costs declined to the lowest level since November 2020. The data maintained a slightly more positive assessment of the economy. Sterling still struggled to make any headway amid doubts that the Bank of England would be push ahead with further significant rate hikes amid peak inflation. The currency posted net losses on the day despite tentative gains on Wall Street. Sterling hit resistance against the dollar and managed to hold. BRC data recorded a like-for-like increase in retail sales of 4.9% from 3.9% previously which still indicated a significant decline in real terms while Barclays data indicated a recovery in consumer confidence.

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The Euro-Zone Sentix investor confidence index dipped to -11.1 for March from -8.0 the previous month and contrary to expectations of a further limited net advance to -6.3. According to Sentix, after several months of improvement in investors’ assessments of the economic situation and expectations, there was a new headwind for economic development at the beginning of March. The data triggered some reservations over the outlook. ECB chief economist Lane stated that hiking interest rates beyond March fits with what inflation pressures are suggesting, but he did not make any attempt at quantifying the scale of potential rate increases. Council member Holzmann stated that he hopes peak interest rates will be reached in the next year, but he expects that it will take a very long time for inflation to come down. The rhetoric overall was relatively hawkish which continued to provide underlying support.

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Comments from Fed Chair Powell will be watched very closely on Tuesday with a particular focus on whether he adopts a more hawkish stance and warns more strongly that the Fed will have to be more aggressive in raising interest rates. Powell, at this stage, is likely to reiterate that the central bank is data dependent.

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15.00 Jerome Powell Testifies