The UK government borrowing data was notably worse than expected with underlying upward pressure on spending while debt interest payments increased to a record high. There were still expectations that Chancellor Sunak would look to provide a fiscal package in his spring statement to ease the impact of the surge in energy prices. The UK CBI industrial orders index strengthened to 26 for March from 20 previously and above consensus forecasts of 16. Companies remained optimistic over the outlook and there were further inflation pressures with the balance of manufacturers expecting to raise prices at a record high since the survey started in 1975. Sterling was able to secure further net gains ahead of Tuesday’s New York open with gains in equity markets providing support. There were also expectations that the combination of higher inflation and fiscal boost would lead to further interest rate increases by the Bank of England. The deal to drop US tariffs on UK steel and aluminium exports helped underpin Sterling sentiment. The headline UK CPI inflation rate jumped to a 29-year high of 6.2% from 5.5% and above expectations of 5.9% with the core rate at 4.3%.
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12.30 Spring Budget
The Euro-zone current account surplus was unchanged at €22.6bn for January. In the 12 months to January, the surplus widened to €294bn and 2.4% from €247bn the previous year. There were still substantial capital outflows over the year with net outflows of over €500bn. The capital account will remain an important focus in the short term with concerns that the Ukraine crisis will trigger further net outflows from the Euro area which will hamper the Euro. Underlying Euro sentiment remained negative, but the currency was resilient ahead of the New York open and there was limited position adjustment and a covering of short positions. ECB council member Villeroy stated that the central bank needed to normalise policy to keep inflation expectations anchored.
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The US Richmond Fed manufacturing index strengthened to 13 for March from 1 previously and above market expectations of 2. New and unfilled orders components both moved back into positive territory while inventories continued to decline. Wages increased at a faster rate and skills shortages intensified. There was a slight easing of upward cost pressures, but with a faster rate of increase for prices received. San Francisco Fed President Daly stated that policy-supported demand and fragile supply chains was a recipe for inflation which is too high. She added that it is time to get back to a neutral monetary policy and looking though the Fed will need to go over neutral.
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12.00 Jerome Powell Speech