April 19, 2023

Daily Report 19/04/2023

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Sterling posted gains after Tuesday’s European open with further support from the latest UK data. The labour-market data overall was mixed, but the stronger than expected data on wages reinforced expectations that the Bank of England would have to be more aggressive in raising interest rates to curb inflation. Chancellor Hunt appointed new advisers to his economic council including former Bank of England chief economist Haldane. Risk conditions were broadly stable which contributed to generally narrow ranges during the day as markets waited for further evidence on the domestic and global outlook with the Euro little changed. The headline UK inflation declined to 10.1% for March from 10.4% previously, but this was significantly above expectations of 9.8%. The core rate was unchanged at 6.2% and above expectations of 6.0%. The failure to dip below 10.0% will increase concerns over higher inflation expectations and there will also be expectations that the Bank of England will have to maintain a hawkish policy stance. Comments from Bank of England officials will be watched closely to see whether there is any change in stance.

Key Data

7.00 Consumer Price Index (YoY) (Mar) Act. 10.1% Exp. 9.8% Prev. 10.4%

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The German ZEW economic expectations index retreated to 4.1 for April from 13.0 the previous month and below consensus forecasts of a further net recovery to 15.3. The current conditions component, however, did recover to -32.5 from -46.5 and above market expectations of -40.0. The dip in expectations will maintain some reservations surrounding the Euro-Zone outlook, although the market impact was limited. The Euro, however, maintained a firm tone into the New York open.

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US housing starts were little changed at an annual rate of 1.42mn for March from a revised 1.43mn the previous month and slightly above consensus forecasts of 1.40mn. There was, however, a sharp decline in building permits to 1.41mn from 1.55mn for February. St Louis Fed president Bullard stated that US recession predictions ignore the strength of labour markets and that interest rates need to increase further given that there has not been much progress on inflation. He added that interest rates in a 5.50-5.75% range would be adequately restrictive. Atlanta Fed Bostic stated that inflation remains too high, but he was less hawkish that Bullard and he sees one more rate increase with the Fed then on hold to assess the situation. As far as inflation is concerned, the Fed’s Beige Book will be released on Wednesday.

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