Optimistic for October
Halifax reported a 0.4% increase in February’s house price index following a 0.5% fall in January. Annual growth slowed to a five-year low of 1.8%, down from 2.2% in January’s report and the RICS house-price index was no better with zero for February, also a five-year low.
Divisions in Brexit messages from both sides put Sterling on the defensive, enabling the Euro to push to three-month highs near 1.1148. Overall, there was a more optimistic stance on Brexit negotiations after conciliatory rhetoric from EU officials, as well as hopes that a trade deal could be reached by October.
Chancellor Philip Hammond also expects a transition period to be formalised during the EU Leaders’ Summit on 22-23 March. The Euro slipped to 1.1205, although a dip in UK bond yields and global equity markets limited further Pound purchasing. On top of this, the UK currency remained hampered by fears surrounding global trade wars with consolidation near 1.3900 against the Dollar on market open.
The Eurozone’s Q4 GDP estimate was unchanged at 0.6% with annual growth of 2.7%. Concerns over the Italian political situation faded further despite increased speculation that Eurosceptic Matteo Salvini could be nominated as Prime Minister.
Thursday’s European Central Bank (ECB) policy decision is still generating uncertainty given the possibility of a shift in forward guidance. Expectations of a shift in language have faded of late and the Euro settled just above 1.2400 against the Dollar.
The Dollar slipped against the Euro, printing two-week lows of 1.2450 by market open yesterday. US ADP data recorded private-sector employment increasing by 235,000 in February and January’s figure was revised up to 244,000, with further evidence of a very strong labour market.
The US trade deficit increased to $56.6bn in January, up from December’s $53.9bn; the widest deficit for over nine years as exports declined. The deficit with China also increased, ensuring that political tensions surrounding trade remained a significant focus.
The Dollar had previously weakened following the White House’s top economic advisor Gary Cohn’s resignation who was opposed to protectionism in President Donald Trump’s administration. His departure has fanned fears of a potential global trade war if Trump presses ahead with proposals for tariffs on all imports of steel and aluminium.
Atlanta Fed President Raphael Bostic stated his outlook had changed to three rate increases this year, up from two previously, and firm data provided an element of Dollar protection with the Euro retreating to the 1.2400 area.
Data To Watch:
00:01 GBP RICS Housing Price Balance (Feb)
07:00 EUR Factory Orders n.s.a. (YoY) (Jan) – Germany
07:00 EUR Factory Orders s.a. (MoM) (Jan) – Germany
12:45 EUR ECB Deposit Rate Decision
12:45 EUR ECB Interest Rate Decision
13:30 USD Initial Jobless Claims (Mar 2)
13:30 USD Continuing Jobless Claims (Feb 23)
13:30 EUR ECB Monetary policy statement and press conference