The main focus last week was the FOMC meeting as the market keeps deliberating the ongoing yield debate. Fed Chair Powell stated that a transitory increase in rates this year would not meet the criteria for raising interest rates and that the economy is a long way from its goals while near-zero interest rates remain appropriate until these targets are met. In addition, Powell has previously laid out that tapering would come before any discussion on shifting rates. Powell added that it is not time to talk about tapering yet and that it is doubtful whether there will be a substantial increase in inflation while slack remains in the labour market. The overall dovish tone sent the US Dollar lower as markets parred expectations for action from the Federal Reserve.

In terms of data, economic readings showed two contrasting economies.  The US economy expanded by 6.4% on an annualised basis in Q1, propelled by a 10.7% rise in personal consumption. Growth could be even stronger in Q2. In contrast, Eurozone Q1 growth fell by 0.6%, signalling a return to recession as Covid-19 containment measures were extended.

Looking to the week ahead the UK’s focus is likely to be twofold. The Bank of England (BoE) policy decision on Thursday takes centre stage for sterling markets, but there will also be attention on Scottish and Welsh parliament and English local elections. Across in the US, the main market focus will be the US labour market report due on Friday.

Tuesday

  • UK Mortgage Approvals
  • UK Net Lending
  • US Factory orders

The UK returns from a bank holiday with mortgage and lending data hitting the wires. Mortgage approvals are expected to drop slightly from last month whilst the lending figures are expected to increase. US factory orders are expected to continue the strong run of data and improve from last month’s contraction.

Wednesday

  • EU Economic Forecast
  • US ADP Employment Change
  • US ISM Services PMI

The EU Economic forecasts are set for release from the European Commission’s basis for evaluating economic performance and trends of EU member states. Given the extended lockdowns that member states have encountered and the tepid vaccine rollout, this data could prove to be quite interesting. This report includes economic forecasts for EU member states over the next 2 years. The US ADP employment report will provide the market with some insight ahead of Friday’s all-important government labour report. Whilst the market pays attention to this figure it rarely reacts to it given the historic divergence from the government report. In addition, economic activity in the service sector will be watched in the form of the PMI Services.

Thursday

  • UK BoE Meeting
  • US Initial Jobless Claims

The Bank of England is expected to present a more optimistic view of the domestic economic outlook when it delivers its latest policy announcement following the successful vaccine and unlocking of restrictions. No changes in monetary policy are expected, with both Bank Rate and the target level for asset purchases maintained at 0.10% and £895bn respectively. However, the BoE will also publish an update to its economic forecasts in the quarterly Monetary Policy Report. The last update here was in February in the midst of a lockdown and since then all the news on this front has been positive. It is plausible to see some growth and inflation upgrades in the near term but the market will be focused on the path monetary policy moving forward.

Friday

  • UK PMI Construction
  • ECB President Lagarde Speaks
  • US Non Farm Payrolls and Labour Data

The main market data focus will be the US labour market report, especially with the ongoing debate surrounding yields and monetary policy in the worlds largest economy. The headline unemployment rate is expect to slide from 6% to 5.7% with 975k new jobs created. Solid numbers will keep the debate going regarding the yield curve and trajectory. Prior to that the UK PMI construction will be watched for a measure on economic activity whilst ECB President Lagarde at the State of the Union in Florence.

 

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