February 28, 2023

Daily Report 28/02/2023

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Sterling was able to resist selling pressure after Monday’s European open and gradually gained traction ahead of the New York open. There were expectations that the UK and EU would announce a deal on the Northern Ireland protocol later in the day. There was also a slightly firmer tone surrounding risk appetite which helped underpin confidence as equities attempted to recover some ground. In a press conference with EU Commission President Von der Leyen, Prime Minister Sunak confirmed that there was a deal on the Northern Ireland protocol with a new Windsor Framework. The agreement will be significant in reducing friction surrounding trade and did have an impact in underpinning confidence surrounding the economic outlook and Sterling.

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The Euro-Zone industrial sentiment index edged lower to 0.5 for February from 1.2 previously and below consensus forecasts of 2.0 while there was also a net retreat in services-sector index. The overall business and consumer survey declined marginally to 99.7 from 99.8 and below market expectations of 101.0. The data overall triggered further reservations over the Euro-Zone outlook with no further support from the decline in energy prices, although gas prices hit fresh 18-month lows which should underpin confidence. The Euro did manage to resist further selling after the European open and managed to crawl higher amid a phase of dollar consolidation. There will be significant month-end position adjustment on Tuesday which will lead to choppy overall trading during the day. There will also be inflation releases from France and Spain ahead of the German and Euro-Zone figures over the following two days.

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US durable goods orders declined 4.5% for January after a revised 5.1% increase the previous month and slightly weaker than consensus forecasts. Underlying orders increased 0.7% after a 0.4% decline the previous month. Pending home sales recorded an 8.1% rebound for January after a revised 1.1% increase the previous month, but overall data releases were mixed. The Dallas Fed manufacturing index dipped to -13.5 for February from -8.4 previously with a slide in weak orders, but there were increased inflation pressures. The BIS commented on Monday that central banks needed to get the job done when it comes to controlling inflation and avoid declaring victory too early. Fed Governor Jefferson rejected the arguments for raising the inflation target to above 2%. On the short-term outlook, he commented that recent data suggested that wage inflation pressure was easing while the outlook for core services inflation is uncertain.

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