Supply chain hitch delays good news deliveries
UK labour-market data generated little positive impact as the ILO unemployment rate for the three months leading to January ticked down to 5%, 0.2% below a forecast of 5.2% was offset by average earnings including bonuses for the same time period dropping 0.1% to 4.1%. Lee out of work but earning slightly less. CBI industrial orders recovered strongly to -5 for March from -24 the previous month, well above consensus forecasts of -20 and the strongest reading since April 2019. Export orders also recovered but were still slightly below the long-term average. Manufacturers also expect output to increase at the fastest pace since August 2017 while prices are also expected to increase at a faster pace.
Global risk appetite had slightly shrunk which sapped potential currency support. Sterling initially dipped to near 1.3750 against the Dollar and lost ground against its peers on concerns for UK vaccine supplies.
Risk conditions are more fragile this morning, and the Pound is feeling the lack of support. The CPI inflation declined well below expectations of 0.8% to 0.4% in February and core inflation rate at 0.9%, down from 1.4%. Lower than expected inflation will dampen any expectations of higher bond yields and limit currency support. Sterling remains near 6-week lows just below 1.3700 to the Dollar with the Euro at 1.1580.
The US current account deficit widened to $188.5bn for the fourth quarter of 2020 from $180.9bn the previous quarter and close to consensus forecasts.
February new home sales declined to an annual rate of 775,000 from a revised 948,000 previously and well below expectations on temporary factors.
The Richmond Federal Reserve (Fed) manufacturing index strengthened to 17 for March from 14 previously with a further increase in delivery times. There was a further solid increase in employment for the month and further upward pressure on prices with prices paid increasing at close to the fastest rate on record. The Philly Fed non-manufacturing index jumped to 38.6 for March from 3.9 previously. Price increases were more moderate than in the manufacturing sector.
Dallas Fed 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. He also stated that his forecasts have increased meaningfully. He is on the hawkish end of the committee spectrum and expects the Fed to start increasing interest rates in 2022.
Fed Chair Powell reiterated that monetary policy would remain highly accommodative. He remained confident that there would not be a sustained increase in inflation but also insisted that the central bank had the tools to deal with inflation if it is a concern. Governor Brainard reiterated that she expected a transitory increase in inflation.
The Euro dropped to over 2 week lows, around the 1.1835 region overnight against the Dollar with the pair last seen hovering around the 1.1815 mark.
Following yesterday’s sharp fall, the pair now seems to have entered a bearish phase with the market awaiting news from today’s Eurozone data for fresh directional bias. The single currency continues to be weighed down by growing concerns about a third wave of COVID-19 infections, pandemic related lockdowns and the slow vaccine rollouts in Europe. Several European countries have already extended or reintroduced lockdown measures in an effort to curb rising cases, fuelled by more contagious new variants.
Data to watch
07:00 – EUR – French Flash Services PMI
08:15 – EUR – French Flash Manufacturing PMI
08:15 – EUR – German Flash Manufacturing PMI
08:30 – EUR – German Flash Services PMI
08:30 – EUR – Flash Manufacturing PMI
09:00 – EUR – Flash Services PMI
09:00 – EUR – Flash Manufacturing PMI
09:30 – EUR – Flash Services PMI
13:45 – USD – Flash Manufacturing PMI
14:00 – USD – Fed Chair Powell Testifies
14:30 – USD – Crude Oil inventories
15:40 – EUR – ECB President Lagarde Speaks