The UK CBI retail sales index was little changed at 1 for March from 2 the previous month and slightly above consensus forecasts of –2. Retailers expect an increase in sales for April, the first reading of positive expectations since September 2022. Although expectations remain subdued, the data maintained an element of slightly greater optimism over the outlook as recession fears continued to ease. Sterling was underpinned by firmer risk conditions during the day as equities recovered ground and immediate fears surrounding the banking sector eased. Bank of England Governor Bailey stated that further tightening would be required if persistent inflation appears. He added that monetary policy must act to ensure that inflation from abroad does not become long lasting. He also noted that the full effect of higher interest rates are still working through the economy. Sterling held firm despite an element of dovishness in the remarks with markets pricing in around a 50% chance of a further rate hike in May. BRC data recorded an increase in shop prices of 8.9% from 8.4% previously and a record high for the series, maintaining retail inflation concerns.
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9.45 Andrew Bailey Speech
The German IFO business confidence index strengthened to 93.3 for March from 91.0 previously and significantly above consensus forecasts of 91.1. The current conditions component strengthened to 95.4 from 93.9 and the expectations index also recovered to 91.2 from 88.4. The IFO stated that conditions had improved considerably, especially in key areas such as manufacturing. There were still some reservations over the outlook, although low gas prices will provide further support. Overall conditions were calmer on Monday with reduced fears surrounding the European banking sector while equity markets were able to recover ground. The calmer tone and relief over the banking sector helped provide underlying support for the Euro and defensive dollar support also faded to some extent. ECB council member Schnabel stated that there is no sign of the labour market weakening and she also stated that there were financial stability risks, although the situation is still fragile. Bundesbank head Nagel stated that inflation is still too high and that the central bank must be resolute in the fight against inflation
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14.15 Christine Lagarde Speech
US Treasuries gradually lost ground ahead of Monday’s US open with higher yields tending to underpin the US currency. The Dallas manufacturing index dipped further to –15.7 for March from –13.5 previously, maintaining the run of generally weak regional manufacturing surveys. Treasuries continued to lose ground with the 10-year yield increasing to around 3.50% and the dollar settled at the New York close.
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