Last week there was a vast amount of economic data released from the UK but in hindsight, this failed to provide any significant directional change in the value of the sterling. Labour data was positive as the unemployment rate declined from 5.0% to 4.9% with a smaller than expected increase in jobless claims. Retail sales increased 5.4% for March, well above the market expectations of 1.5%, while government borrowing was above forecasts. In the meantime, inflation was just under forecast. The significant hindrance to the Sterling was the risk-off tone following as the WHO stated that new COVID-19 cases are rising in all parts of the world except Europe.
In Europe, the ECB made no changes to interest rates following the latest policy meeting, in line with expectation, and in line with consensus forecasts. There were also no changes to the asset-purchase programme with the total envelope for PEPP bond purchases remaining at EUR1850bn which will be maintained until at least March 2022. As announced at the previous meeting, purchases will move at a faster pace this quarter before inevitably slowing down again. There was a degree of cautious optimism in Europe which strengthen the single currency supported by the EU announcement that it had secured a further 100 million doses of the Pfizer vaccine and the Johnson & Johnson’s resumption of the COVID-19 vaccine rollout across Europe. Additionally, economic activity in both the services and manufacturing sector accelerated.
It was a quiet week in terms of economic data for the US. The Sentiment surrounding COVID-19 continues to be the main driver. It is worth noting that economic activity continues to be solid. The PMI services and manufacturing reading displayed record highs, showing that the pace of expansion is at its fastest ever since records began in 2009.
The focus this week is likely to be on two areas, growth data and the FOMC meeting. In the US, GDP figures (Thursday) are expected to show that the economy grew and at an accelerated rate in Q1 in comparison to the Q1 GDP in the Eurozone (Friday) which is forecast to have fallen by 0.8% as restrictions remain in place. This is likely to be its second consecutive quarterly fall, meaning that the economy was in recession for the second time in 12 months. The FOMC meeting on Wednesday’ seems certain to leave monetary policy unchanged. The only real question is over whether the Federal Reserve will make any adjustments to its forward guidance given the increasingly positive news on the economy.
- German IFO survey
- US Durable goods
With economic data appearing to turn the corner in Germany and contrasting restrictions, the market will be keen to articulate the economic sentiment in both the current climate and the forward-looking 6-month view of its manufacturers, builders, wholesalers, services, and retailers. In the meantime, the US Durable goods are expected to follow the trend and show further economic activity.
- UK CBI Realized Sales
- US Consumer confidence
The CBI retail sales could provide the UK economy with a further boost if economic activity continues to be driven by the retail sector. With restrictions easing, the market will be keen to articulate these numbers. In the meantime, following the strong economic numbers from the US and the solid vaccine rollout, consumer confidence is expected to improve.
- ECB President Lagarde Speaks
- FOMC Meeting
ECB President Lagarde is due to speak at the online Global Leaders Series of the Aspen Security Forum. As head of the central bank, the market will keep a close eye on her comments for clues on future policy action or expectations. The FOMC meeting is the focus of the week following the solid start economic activity has had and the speculation over yields in recent times. It seems certain to leave monetary policy unchanged. The only real question is over whether the Federal Reserve will make any adjustments to its forward guidance given the increasingly positive news on the economy.
- US GDP
US GDP figures are expected to show that the economy has grown and at an accelerated rate in Q1 (some forecasts are as high as 7.5% annualised rise). This reflects the less onerous restrictions in the US than in the Eurozone or the UK and support from accommodative monetary policy including substantial new fiscal stimulus.
- EZ CPI (Inflation)
- EZ GDP
Eurozone COVID-19 restrictions are likely to show further slowing of the economy. The headline figure is expected to fall by 0.8% with the decline primarily centred in those areas of the service sector. That is likely to be the second consecutive quarterly fall, meaning that the economy was in recession for the second time in 12 months. In the meantime, the region’s inflation is expected to creep higher.
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