Last week we saw Sterling under pressure in large due to COVID related matters. There were also fresh reports that the UK would face vaccine supply difficulties over the next few weeks. This in turn could result in the slowing pace of the COVID vaccinations in the UK could ultimately delay the government’s plans to reopen the economy further with the reduction of restrictions in five weeks’ time. In addition, there were some reservations that the UK advantage over the Eurozone was set to narrow over the next few months. However, there was some positive news from the UK economy as the UK PMI construction index strengthened to its strongest reading since September 2014.Oppositely, the single currency strengthened on vaccine hopes. Reports from EU Commission internal documents signal that the EU was on track to vaccinate close to 60% of the total population by the end of June, which would also imply that the EU is likely to exceed the target of 70% vaccination rates by the end of the Summer. The Euro has been trailing large parts of the developed world in terms of vaccine deployment so a pickup could restart a faltering economy.In the meantime, focus in the US remains on bond yields and the path of interest rates. Fed Chair Powell was speaking at the virtual IMF meeting. He stated that monetary and fiscal policy, allied with the vaccination programme, is creating a brighter outlook.  He also noted, however, that he wants to see a string of

Last week it was a short one as the UK and Europe celebrated Easter weekend. Much of the focus was on the US labour data which was released on Friday. Following the positive data trend seen from the US Labour Department, non-farm payrolls soared by 916,000 jobs last month, marking up its largest gain since late August, while February data was revised to be higher. Unemployment declined to a 12-month low from 6.2% to 6.0% in line with market expectations. Following this on Monday, the Institute of Supply Management (ISM) services sector index strengthened sharply to a record high of 63.7 for March.Bank of England Monetary Policy Committee (MPC) member Vlieghe advised that rapid growth is required to close the gap compared with the pre-pandemic growth roadmap. He noted that a few quarters of good growth would not imply that the central bank can put on the brakes and tighten policy. He also added that any increase in inflation would not be enough this year to say that the economy does not require monetary support.In Europe, overall confidence in the region remained weak. This was illustrated by reports that Italy was set to cut its GDP forecast for 2021 growth from 6.0%. to 4.1%. This was further compounded when French President Emmanuel Macron announced a nationwide four-week lockdown, an alarming sign that Europe is yet again losing control of the pandemic.Looking to the week ahead, the market will continue to focus on US data following the bullish labour data last

Last week the focus was on the vaccine news story with the EU summit and the ongoing US yield debate. German Chancellor Merkel stated that the country is now in a new pandemic while French President Macron advised new short-term restrictions. EU leaders, in theory, backed the potential to block vaccine exports and Commission President Von der Leyen stated that AstraZeneca must catch up on promised deliveries before exporting doses elsewhere. The EU health director stated that he was optimistic that the EU would hit a 70% vaccination target by late summer, but concerns continued, and the Euro retreated.The Sterling was dented by the potential impact of vaccine disruption because of the ongoing tensions with the EU along with the risk of the move following the Suez Canal crisis. Softer inflation did little to help the currency. Inflation declined from 0.7% to 0.4% for February, well below expectations of 0.8% with core inflation rates at 0.9% from 1.4%. The lower-than-expected inflation rate will dampen any expectations of higher yields and curb currency support. However, the Bank of England Chief Economist Andy Haldane stated the UK economy could see a “rip-roaring” recovery even if consumers spend just a bit of the additional savings they accumulated during the COVID-19 crisis.In the meantime, US Dollar sentiment was mixed following comments from central bankers. Dallas Federal Reserve Bank President Kaplan stated that his base case is that there will be a temporary surge in prices this year while inflation will settle down next year.

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

Last week the key focus was the ECB meeting as the market was keen to decipher their stance given the recent turmoil. In addition, both UK and US data was under scrutiny. Starting with the ECB, the central bank made no changes to interest rates. Bank President Lagarde stated that the overall economic situation is to improve in 2021, but uncertainty remains. Lagarde also noted that the inflation pick-up is mostly due to transitory factors, although projections also see a gradual increase in underlying inflation pressure. The 2021 inflation forecast has been revised up to 1.5% from 1.0% previously, but with only a marginal increase in the 2022 forecast to 1.2% from 1.1%. The Euro strengthens on the back of the meeting as it was less dovish than anticipated. In the UK, GDP declined 2.9% for January compared with expectations of a 4.9% decline, although there was a sharper than expected decline in industrial production. Overall confidence in the UK economy remained robust with expectations that there would be a strong recovery as lockdown measures are eased. Bank of England Governor Bailey stated that contingency planning for negative interest rates did not imply any intentions for moving in that direction. He added that the UK economy faced two-sided risks to the recovery and that risks were tilted downwards for now, but the risks are gradually diminishing. As far as inflation is concerned, Bailey noted that the rate would increase in the short term and it will be challenging in

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

Last week the US Dollar made significant gains across the board as the market started to question the duration of the ongoing Federal Reserve despite continued echoing from the central bank, pledging their support. The rationale for the change in sentiment from the market was the improvement in data which saw consumer confidence, labour, and spending data improve. If this trend continues then inflation is likely to improve and subsequently the potential for a rate cut but also the reduction of support mechanisms.In the meantime, the Sterling fell from its circa 3-year highs against the US Dollar and its 1 year high against the Euro. The Sterling has been boosted by the effectiveness of the vaccine rollout and the optimistic roadmap for the reopening of the UK economy. According to data compiled by Statista up to 25/02/21, the UK had vaccinated 28.57 in 100 whilst in comparison to Germany and France who are both less than 7 in 100. However, comments from BoE members were more cautious and put some question marks around underlying fundamentals. Bank of England Deputy Governor Broadbent stated that risks for employment was in both directions but that there was a clear risk that the rate will rise significantly once job-support schemes come to an end. In addition, he stated that the central bank is continuing to debate the effectiveness of negative interest; therefore, not removing the issue. In the meantime, MPC member Haskel stated that risks to activity are very much on the downside, especially

Last week, the Sterling made multi-month highs against both the single currency and the US dollar as optimism surrounding the UK’s emergence from lockdown restrictions grew. Prime Minister Johnson will be laying out his roadmap for the loosening of restrictions on Monday evening. In addition, helping to push Sterling higher was the increase in risk appetite. Whilst the optimism has boosted Sterling the UK retail sales figures will highlight the fragility of the economy. Retail sales sank 8.2% in January from the month before, the fastest rate of decline since last April. "The latest national lockdown led to a sharp monthly fall in January's retail sales, with April 2020 the only month on record to see a bigger slump," said the ONS' deputy national statistician for economic statistics, Jonathan Athow. Retailers will be waiting to decipher Prime Minister Johnson’s roadmap to articulate when the high street can reopen and under what conditions. Concerns in Europe remain regarding the rollout of the vaccination and the ongoing mutations; however, this was not necessarily reflected in the economic data released. The German ZEW economic sentiment index strengthened to a 5-month high and was above consensus forecasts whilst the wider Eurozone index strengthened to 69.6 from 58.3 previously. This was coupled with the flash reading of the IHS Markit Eurozone composite purchasing managers index which rose to a two-month high, albeit still slightly contracting. It is worth noting that the manufacturing PMI rose to a 36-month high. In the meantime, the US Dollar

Last week we saw the “risk on” tone return to the market; generally aided by central bankers. A number have expressed optimism that a strong rebound in economic growth should be possible later this year, with one Bank of England official likening the UK economy to a “coiled spring”. Federal Reserve (Fed) Chair Powell Jerome Powell said that the economy remains a long way from full employment. These comments reassured markets that they will have continued support from a combination of the expected rebound alongside very loose monetary and fiscal policy. The UK’s vaccine programme hit a landmark this weekend, hitting it target of 15 million people by the 15th February. Covid-19 cases are down for a fourth successive week, which is fuelling speculation about when the latest set of lockdowns will start to be eased. Prime Minister Johnson is set to address the nation on 22nd February with a road map for reducing lockdown levels; reaffirming that schools could reopen on the 8th March. However, as some scientists have suggested that both dates may be premature; the coming week will be watched for any adjustments and signposting to this timetable. In terms of data, UK Gross Domestic Product (GDP) increased by 1.0% for the fourth quarter of 2020, above expectations of 0.5% with a 9.9% contraction for 2020. Importantly, this removes the short-term chances of a double dip recession. However, it should also be noted that the Office of National Statistics (ONS) estimate suggested that 18% of the national

Outside of covid developments, much of the focus was on the Bank of England quarterly inflation report and policy meeting as well as the US employment data following last month’s negative reading. Starting with the Bank of England (BoE) policy meeting, the central bank made no policy changes with interest rates held at 0.1% and total asset purchases at £895bn with both decisions unanimous. The was a cautious but optimistic tone. The BoE now expects a Gross Domestic Product (GDP) contraction of 4.2% for the first quarter compared with slight growth expected in the November report because of lockdown. In terms of its unemployment outlook, they have not ruled out a potential extension by the Chancellor which could lower their peak estimates of 7.75% unemployment by the middle of the year. The other focus of the meeting was the topic of negative interest rates. The central bank revealed that it has asked banks to begin preparatory work for negative interest rates, including a tiered system of reserve remuneration. However, policymakers stressed that this was to add that to their policy toolkit and was not a policy signal. They went on to say that there would be six-month implementation period of such a policy move, which could rule out this option as they have also stated that they feel the economy could bounce back strongly in the second half of the year. Across the pond, the focus was on US unemployment data following last month’s contraction. The headline figure disappointed