Last week the market was focused on the central bank meeting from both the FOMC and BoE as it continues to look for directional clues on their thoughts regarding recovery and the path of interest rates.
The US FOMC held interest rates at 0.25% and made no changes to the bond-buying programme which was in line with consensus forecasts and with unanimous votes. There was a sharp rise in the 2021 GDP growth forecast from 4.2% to 6.5% with unemployment expected to decline sharply. During the revealing of the all-important dot plot, seven members expected rates to increase in 2023. The median projection for rates remains unchanged, contrary to market expectations that there would be a shift to forecasting a rate hike. Federal Chair Powell reiterated that the central bank is strongly committed to achieving its goals and will continue to provide support for as long as is needed.
The Bank of England held interest rates at 0.1% following the latest policy meeting and made no changes to the asset purchase programme. Both decisions were by a 9-0 vote and were in line with market expectations. The central bank expressed cautious optimism over the outlook with the potential for the economy to recover more quickly than expected, although the committee also reiterated that the outlook was highly uncertain. The MPC reiterated that there was a high barrier to policy tightening while Chief Economist Haldane remained optimistic over the outlook. Echoing the positive sentiment, Ipsos MORI’s latest Political Monitor reveals that 43% of Britons think the economy will improve over the next 12 months (up 14 points from last month). This is the most optimistic the British public have been with regards economic uplift since 2015 and it also marks the largest month-on-month improvement since records began in 1978.
In the meantime, economic data from Germany improved. The German ZEW economic sentiment index strengthened from 71.2 to 76.6 for March, above consensus forecasts of 71.2. Sentiment also improves on the anticipation that at least 70% of the German population will be offered a vaccine against COVID-19 by Autumn 2021.
Looking to the week ahead, it will be a busy week in terms of economic data and political sentiment. Several central bankers are due to speak and will be closely watched for clues on policy. In addition, economic data surrounding growth metrics will be monitored, in particular the purchasing managers index (PMI) for the service and manufacturing sectors from the EZ, UK, and US on Wednesday. The ongoing tensions between the UK and EU surrounding the Oxford-AstraZeneca vaccine exports may also come to a head this week with the EU summit on Thursday and Friday. Any ban could impact the rollout and easing of lockdown restrictions in the UK.
- FOMC Chair Powell speaks
- US Existing home sales
Following last week’s tepid tone from the FOMC meeting, the market will continue to monitor the rhetoric and tone of FOMC Chair Powell. Today he is due to participate in a virtual panel discussion about central bank innovation at an online event hosted by the Bank for International Settlements. In the meantime, the existing home sales will provide an indicator of the marketing market in the US.
- UK employment data
- BoE Gov Bailey speaks
- FOMC Chair Powell speaks
The UK employment data is set for release today and is expected to increase slightly by 0.1% up to 5.2% with a more keenly watched metric on claims increasing by 9,000 for jobless benefit. The BoE expects unemployment rises of up to 7.75% by the middle of the year, however, this may be adjusted at their next meeting given the extension of the furlough programme. Both BoE Gov Bailey and FOMC Chair Powell are due to speak at separate events. As heads of their respective central banks, the market will keep a close eye on their respective tone.
- UK inflation
- UK/EZ/US PMI Services
- UK/EZ/US PMI Manufacturing
- US durable goods
- ECB President Lagarde speaks
It will be a busy day in terms of data with inflation and economic activity data due to hit the wires. Inflation data is due from the UK in the early hours although this will likely not be closely monitored due to economic activity taking more of a centre stage. Economic activity from the UK, EZ and US is due for release in the form of PMI services and manufacturing data. Ahead of relaxing the lockdown restrictions in the UK, economic activity in its dominant service sector is expected to return to expansionary territory. Data from the Eurozone will remain mixed with manufacturing continuing to expand with services once again posting a contraction. In the US, the same figures hit the wires along with durable goods and could provide positivity for the economy and add further scope to the yield debate currently being monitored by the markets. ECB President Lagarde is due to speak at an online conference hosted by Project Syndicate, the European Investment Bank, and the European Commission. The market will keep a close eye on her tone and rhetoric to see if she provides any further clues on ECB policy given the ailing vaccine rollout from the EU.
- EU Summit
- UK CBI Realized Sales
- US Final GDP Q/Q
Given the well-documented strains in the EU regarding the vaccine rollout, the obvious central talking point will be the response to the pandemic crisis. In France, new lockdown restrictions lasting a month have begun for a substantial proportion of the population (including Paris) to tackle the third wave of infections. Circa 30% of the population is now under lockdown while several German states are also considering extending lockdown restriction as well. It has been speculated that EU leaders are likely to discuss a ban on Oxford-AstraZeneca vaccine exports to the UK. PM Johnson will be conducting one-on-one phone calls with leaders before this to put forward the UK’s case for continued support. If the EU vote to veto exports goes through, it could affect the UK’s vaccination rollout. In the meantime, the UK CBI sales will be watched as the sector is under pressure whilst the final US GDP reading is due and not expected to change from 4.1%.
- UK retail sales
- GER IFO Business Sentiment
- EU Summit
The EU summit continues for a second day and will be closely watched for political developments surrounding COVID-19. The UK’s retail sales are expected to rebound from a big contraction on the previous month with students going back to school therefore helping boost consumer spending. In the meantime, The German IFO will be watched to see if the survey echoes the optimist sentiment from the ZEW survey last week.
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