According to provisional data, the UK government borrowing requirement amounted to £18.1bn for March from £26.9bn the previous year, but this was higher than expected and the second-highest March deficit on record. For fiscal 2021/22, the deficit declined to £151.8bn and 6.4% of GDP from £317.6bn the previous year. The data overall will maintain concerns over the UK fundamentals, especially as debt interest payments will continue to increase, limiting scope for government fiscal support measures. Sterling was unable to make significant headway in early Europe as underlying sentiment towards the UK economy continued to deteriorate. As risk appetite deteriorated again, the UK currency was subjected to sustained selling after the New York open. The UK currency slumped to 21-month lows against the dollar as equity markets moved sharply lower.
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The Euro was unable to make significant headway ahead of Tuesday’s New York open and gradually lost ground amid the combination of an underlying lack of confidence in the Euro-zone outlook and persistent dollar strength. There were further concerns surrounding the Ukraine situation with fears over a prolonged conflict as well as an escalation as Germany reversed policy and agreed to send heavy weapons to Ukraine. The tough rhetoric from Russia also increased concerns over potential disruption to Euro-zone energy imports as Russia announced that gas exports to Poland and Bulgaria would be stopped due a refusal to pay in roubles.
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12.30 Christine Lagarde Speech
The US Case Shiller house-price index increased 2.4% for February with the year-on-year increase at 20.2% from 18.9% previously. Consumer confidence edged lower to 107.3 from a revised 107.6 previously and slightly below market expectations with labour-market confidence slightly weaker. The Richmond Fed manufacturing index edged higher to 14 for April from 13 the previous month and above consensus forecasts of 9, although there was a slowdown in the rate of growth in orders. There was a slight easing of skills shortages, although the labour market remained tight. There was very strong upward pressure on costs while the rate of increase in prices received eased slightly. The dollar overall maintained a strong tone, especially with an element of defensive support given the sharp retreat in equity markets.
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