Last week there were two key events that the markets were anticipating, the UK budget and the key labour data. Sterling drifted into the budget release as the global market moves dominated. There were no major surprises in the package with existing support measures extended until the end of September. There was a sharp increase in corporation tax from 2023, but the Chancellor unveiled measures to boost investment. The Office of Budget Responsibility (OBR) also forecasted that the economy would recover the pre-COVID output level by mid-2022 compared with the end of 2022 as previously stated. In the meantime, US non-farm payroll figures significantly outperformed expectations for February, as 379,000 jobs were added to the US economy. The figure surpassed the expected amount of 180,000, as well as exceeding January’s increase of 160,000, which was revised up from the originally reported 49,000 figures reported a month ago.

The market was also mindful of the Federal Open Market Committee (FOMC) comments following the speculation that interest rates could rise sooner than previously thought. Fed Governor Brainard stated that the central bank would remain patient on monetary policy and was focussed on realised progress towards inflation and employment goals. She reiterated that monetary accommodation should not be removed when unemployment declines. There was no overt move to push back against higher yields and the dollar attempted to stabilise. In the meantime, FOMC Chair stated that a decline in the unemployment rate to 4% would not represent full employment and it was highly unlikely that the target would be reached this year.

Looking to the week ahead, the market will be focused on the ECB meeting on Thursday following the recent moves in yields. In addition, the market will keep a close eye on the rhetoric surrounding the currency. In the meantime, with schools going back this week in the UK, the market will keep a close eye on COVID case numbers.

Monday

  • BoE Gov Bailey Speaks

The market will keep a close eye on BoE Gov Bailey who is due to speak about the economic outlook at a webinar hosted by the Resolution Foundation. Bailey’s rhetoric will be deciphered for clues on future policy and expectations of the economy as the move into the next phase of easing restrictions.

Tuesday

  • BRC Retail Sales
  • EZ employment
  • EZ revised GDP

The British Retail Consortium (BRC) is due to release its latest same-store annualised figures. With the high street under pressure, the market will be keen to articulate how sales have been performing ahead of the potential reopening of the economy following the release of the roadmap. The Eurozone employment and revised GDP are set for release and expected to remain unchanged.

Wednesday

  • US Consumer Price Index

US inflation is set for release and given the recent market sentiment surrounding the yield curve and the messaging from the Federal Reserve, the market will be keen to understand what this means for interest rates moving forward. An increase in inflation could result in further speculation that rates could move higher sooner than expected. However, FOMC members have continued to reiterate the support that the central bank will be offering.

Thursday

  • ECB meeting
  • US jobless claims

The ECB meeting will be the key event for the week. The recent tone of officials has been much more cautious about rising yields because of the Eurozone economy remaining fragile amid the slow vaccine rollout. The ECB is not expected to announce changes to interest rates or to the size of its asset purchase programmes. However, there is an expectation that the ECB will use the flexibility of the existing €1.85 trillion Pandemic Emergency Purchase Programme (PEPP) to increase its weekly pace of bond purchases. President Lagarde’s comments on recent market developments will be closely watched, as will be the ECB’s new economic forecasts.

Friday

  • UK GDP (MoM)
  • US UoM Consumer Confidence

The headline data from the UK will be released and will be in the form of the monthly GDP data. The market may ignore this release because of lockdown restrictions. The market is expecting to see a large decline for January because of the third lockdown following Christmas. In the meantime, the first reading of the University of Michigan consumer sentiment is set for release.

 

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