February 21, 2023

Daily Report 21/02/2023

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There were no significant domestic developments during Monday and global conditions were also notably subdued. There were gains across the commodity complex with support from hopes that the Chinese economy will rebound strongly this year. These hopes also provided an element of Sterling support during the day. The PMI data will be released on Tuesday with expectations of slight net improvement, but with manufacturing and services still in contraction territory. The latest government borrowing data recorded a surplus of £5.4bn for January after the substantial deficit for December, but the surplus last year was £12.5bn. January is always a strong month due to tax receipts and there was huge spending on energy support measures with interest payments also continuing to increase.

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The Euro held steady in early Europe, but failed to make headway with further selling interest against the dollar. According to its latest monthly report, headline inflation has peaked, but core inflation is set to decline only tentatively in the coming months. In this context, it added that high inflationary pressures remain in place with the second-round effects of wages growth expected to keep inflation above target for an extended period. It added that the short-term outlook for the economy is more favourable than a few months ago. Comments from ECB President Lagarde will be watched closely on Tuesday for any further forward guidance on interest rate hikes. According to flash data, EU consumer confidence improved slightly to -19.0 for February from -20.7 the previous month and in line with consensus forecasts.

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Narrow ranges prevailed, especially with US markets closed for the Presidents Day holiday and the Euro settled against the US dollar. The business confidence data will be important on Tuesday. Euro-Zone consensus forecasts are for a slightly faster rate of growth in services while manufacturing still in contraction. US manufacturing and services sectors are both expected to remain in contraction territory. Markets will continue to monitor Ukraine developments with Russian forces expected to intensify military offensive operations around the 1-year anniversary of invading Ukraine at the end of this week. There is likely to be an element of caution ahead of Wednesday’s Federal Reserve policy minutes.

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