Last week, the UK focus was on the reopening of the hospitality sector and non-essential shops whilst data surrounding economic activity was largely ignored due to the historic nature and lockdown conditions. The market will focus on the money spent now that restrictions have been reduced. In particular, the impact on new COVID-19 cases will be watched with further restrictions easing on the roadmap, but not before 17th May. The Bank of England announced that chief economist Haldane would leave the bank in June. Haldane has talked up the recovery outlook this year and adopted a generally more hawkish stance. His departure could tilt the balance on the committee significantly and lead to a more dovish policy stance over the medium term with increased resistance to higher interest rates.

The single currency pushed back towards psychological levels against the US Dollar. This was in large part due to the Italian government who announced a stimulus package worth €40bn which helped underpin Euro sentiment. Data and COVID-19 conditions remain dovish. German Chancellor Merkel stated that infection rates are too high and that the third wave may be the toughest. Delays to the Johnson & Johnson vaccine could be a significant setback given that the EU has placed huge orders for the vaccine. In the meantime, the German ZEW economic confidence index retreated and was below consensus forecasts.

The FOMC continues to reaffirm that interest rates will remain at record lows for a sustained period, however, data suggests that the market will keep a close eye on any change in tone. Boston Federal Reserve President Rosengren stated that an interest rate hike is still at least two years away. However, US year-on-year inflation rates increased from 1.7% to 2.6% with the strongest reading since September 2018 whilst retail sales surged 9.8% for March.

Looking to the week ahead, the market will focus on UK data to articulate the fragility of the economy as restrictions have eased this month and whether a solid base is in place for future growth should easing continue as planned. Also, the ECB meeting will be closely monitored in wake of the recent yield story and ongoing problems the region is facing with vaccinations.

Monday

  • EU Current Account

While it appears to be a quiet start to the week, the market will pay attention to the EU current account as it is reporting a significant surplus. Given the turmoil the region is facing because of the pandemic, a strong current account surplus could help the region war chest to tackle the problem.

Tuesday

  • UK Labour data

The UK labour data in the form of claimant change, unemployment rates and average earnings are all due for release. The headline unemployment rate is expected to remain at 5% and the pace of claimant change is still expected to rise, albeit at a slower pace.

Wednesday

  • UK Inflation
  • BoE Gov Bailey due to speak

The yield story has been dominating market headlines in the US as the market tries to articulate when rates will lift from record lows. One metric that is being closely watched is inflation. The UK consumer price index is expected to double from 0.4% to 0.8%. Whilst this is well below the target inflation metric set by the Bank of England, the pace of the rise will be watched more closely as restrictions lift and in line with global inflation. BoE Gov Bailey is due to speak about diversity in market intelligence at a Bank of England virtual event. His rhetoric will be closely watched for clues on future policy.

Thursday

  • ECB policy meeting
  • US weekly jobless claims

The market will be focused on the ECB meeting. The ECB is in no hurry to rein back policy stimulus; in fact, it did the opposite at last month’s meeting as they announced they will increase the pace of asset purchases in Q2. The June meeting will be more significant as the ECB will be armed with new economic forecasts to decide whether accelerated asset purchases should continue into Q3.

Friday

  • UK Retail Sales
  • UK/EZ and US PMI Services
  • UK/EZ and US PMI Manufacturing

Economic activity is very much under the microscope on Friday. The purchasing manager’s index for both the service and manufacturing sectors are due for release for the UK, US and Eurozone. The Eurozone make for a particularly interesting read, because of potential opposing forces affecting activity with regards to ongoing restrictions. UK retails are also due to hit the wire but maybe largely ignored with retail opening this month the focus could be on next month’s reading.

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