Don’t blame me!
Headline UK consumer price inflation edged up to 1.9%, beating expectations of no change. The core inflation rate, however, nudged down to 1.8% from 1.9% previously. Sterling and Interest Rate Futures were unchanged by the data. The latest CBI industrial survey reported the weakest growth rate since May 2018.
Theresa May formally requested an Article 50 extension to June 30th and EU Council President Tusk stated that any short extension would be conditional on the Withdrawal Agreement being passed in parliament. Sterling dropped sharply to just below 1.3150 against the Dollar and 1.1560 against the Euro. Dollar weakness did allow the Pound back above 1.3200 but the Euro held sharp daily gains.
Theresa May pointed a fickle finger of blame at “parliament” in her speech last night, further inflaming domestic tensions and making it less likely to secure backing for her Withdrawal Bill. Fears of a disruptive EU exit have increased ahead of the Bank of England (BoE) policy decision today.
The Federal Reserve (Fed) held the Fed Funds rate in the 2.25-2.50% range, in line with consensus forecasts and the decision was unanimous. According to the statement, job gains had been solid, although the growth rate of economic activity had slowed while recent indicators had suggested a slowdown in household spending and investment. Inflation had also slowed, primarily due to the influence of lower energy prices. With limited rhetoric, there was a shift to “no comment” on the balance of economic risks. As far as individual rate projections are concerned, median forecasts indicate no rate increase this year compared with expectations of two hikes at the December meeting and only one increase in 2020.
Markets priced in a 40% chance that rates could be cut this year and two-year yield spreads between the US and Germany narrowed to eleven-month lows. The FOMC stated that the process of balance-sheet reduction would be slowed from May and come to an end in September. Chair Powell reiterated that the Fed could be patient and potentially on hold for a long time with no hawkish elements. The Dollar weakened sharply following the dovish statement and rate forecasts with the Euro moving to a six-week peak near 1.1450.
Yesterday saw a fairly bad day for the Dollar, meaning the Euro benefitted slightly from the Greenback’s misfortune. The pair finally broke the 1.1400s, building on its recovery from twenty-month lows set earlier this month. German equity markets, however, declined sharply just before the US opened which seemed to limit any significant Dollar losses. Lingering fears over the Eurozone still preside, with all eyes being focussed on PM May’s meeting in Brussels.
Data today sees the Swiss interest rate decision and monetary policy assessment, an economic bulletin from the EU, and retail sales figures from the UK. This is swiftly followed by the Bank of England’s interest rate decision at 12:00 and the minutes shortly after. Whilst this is all going on there is a European Council meeting happening throughout the day so we can expect some volatility.
Data to watch:
24H EUR European Council Meeting
00:30 AUD RBA Bulletin
00:30 AUD Unemployment Rate s.a. (Feb)
00:30 AUD Employment Change s.a. (Feb)
00:30 AUD Fulltime Employment (Feb)
08:30 CHF SNB Interest Rate Decision
08:30 CHF SNB Monetary Policy Assessment
09:00 EUR Economic Bulletin
09:30 GBP Retail Sales (YoY) (Feb)
09:30 GBP Retail Sales (MoM) (Feb)
09:30 GBP Retail Sales ex-Fuel (YoY) (Feb)
09:30 GBP Retail Sales ex-Fuel (MoM) (Feb)
09:30 GBP Public Sector Net Borrowing (Feb)
12:00 GBP BoE Interest Rate Decision
12:00 GBP BoE Asset Purchase Facility
12:00 GBP BoE MPC Vote Unchanged
12:00 GBP BoE MPC Vote Cut
12:00 GBP BoE MPC Vote Hike
12:00 GBP Bank of England Minutes
12:30 USD Initial Jobless Claims (Mar 15)
12:30 USD Continuing Jobless Claims (Mar 15)
12:30 USD Philadelphia Fed Manufacturing Survey (Mar)
23:30 JPY National Consumer Price Index (YoY) (Feb)
23:30 JPY National CPI ex-Fresh Food (YoY) (Feb)
23:30 JPY National CPI ex Food, Energy (YoY) (Feb)
23:50 JPY Foreign Investment in Japan Stocks (Mar 15)