The latest YouGov survey recorded a significant dip in UK consumer confidence for February with particular concerns over household finances, although there was increased optimism over job security. There were further concerns over the UK outlook, especially with households taking a substantial hit from higher energy prices. Sterling gained support from the strengthening in risk appetite, although it was still unable to make significant headway against major currencies and markets would have expected a bigger recovery given the overall extent of gains in equity markets and risk assets. This suggests overall UK confidence has faded. The RICS housing data remained strong with 79% of surveyors reporting an increase in prices compared with 74% previously and above consensus forecasts of 72%, but there were expectations that the housing sector would slow over the next few months.
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The Euro advanced against the dollar and there was a fresh push after the US open following reported comments from Ukraine President Zelensky that the country is ready for a diplomatic solution. Although an aide also added that Ukraine will not trade a single inch of territory, there was increased optimism that peace talks could make headway. There were, however, also warnings that Russia could use non-conventional weapons. As risk appetite recovered further and there was a slide in oil prices, the Euro continued to benefit from short covering. The ECB will hold its latest policy meeting on Thursday with markets expecting that the central bank will look to maintain maximum flexibility in light of the Ukraine conflict. There are also expectations that the bank will draw back from any commitment to monetary tightening given the very high level of uncertainty Markets will also be monitoring the EU Summit amid expectations of a new defence and energy stimulus package. If the EU members fail to agree a package, the Euro is likely to come under renewed pressure.
12.45 ECB Deposit Rate Decision Exp. -0.5% Prev. -0.5%
12.45 ECB Interest Rate Decision Exp. 0% Prev. 0%
13.30 ECB Press Conference
Risk appetite strengthened further in early US trading on Wednesday and US Treasuries lost ground with a dip in defensive demand. The 10-year yield increased to above 1.90% which underpinned the dollar. The US JOLTS data recorded a small decline in job openings to an annual rate of 11.26mn for January from an upwardly revised 11.45mn the previous month, but this was above market expectations and close to record highs which still suggested a very tight labour market. The latest US inflation data will be released on Thursday with the headline rate expected to increase to a 40-year high of 7.9% from 7.5% in January with the core rate forecast to edge lower to 5.9% from 6.0%. Strong data would maintain pressure on the Federal Reserve to tighten monetary policy, but Fed officials will remain in the blackout period ahead of next week’s policy meeting. The White House warned that the headline rate will be high and in-line data would trigger some relief.
13.30 Consumer Price Index ex Food & Energy (MoM) (Feb) Exp. 0.5% Prev. 0.6%
13.30 Consumer Price Index ex Food & Energy (YoY) (Feb) Exp. 6.4% Prev. 6%