UK Borrowing down and Lords didn’t put up a fight
UK Public sector net borrowing (excluding public sector banks) was in surplus by £9.4 billion in January 2017, a £0.3 billion larger surplus than in January 2016; this is the highest January surplus since 2000.
Bank of England Governor Carney maintained a neutral stance in testimony to the Treasury Select Committee. There were no suggestions that the bank was moving closer to signalling any near-term policy tightening but we did hear that a “less optimistic” brexit scenario for the economy would dampen the path for future interest rates. Chief Economist Haldane still considered that the net risks to consumer spending were on the downside.
The Pound rose to 2-month highs above 1.1830 against Sterling and, after finding support close to 1.2400, there was a UK recovery to near 1.2500 against the Dollar as the Article 50 Bill passed the first House of Lords stage without a vote.
The Euro-zone composite PMI output index strengthened to a 5 and a half year high of 56.0 in February with both the manufacturing and services sectors making ground. There was robust gains in orders and employment and input prices rose at the fastest pace since May 2011 as overall inflation pressures increased which boosted confidence in the overall Euro-area growth outlook.
Political concerns still had a significant impact after an opinion poll showed far-right, pro-Frexit presidential candidate Marine Le Pen gaining ground in the French election race, in turn, reducing the value of the single currency. The overall firm tone in risk appetite also encouraged a further use of the Euro as a funding currency.
US manufacturing PMI declined to a two-month low of 54.3 with the services sector also registering a slower growth for the month. Although the data was still solid, there was some speculation of momentum slowing with the strong Dollar had an impact in curbing activity.
Overall, the Dollar retreated from its best levels with the Euro rallying back to the 1.0550 area.
Cleveland Fed President Mester stated that the US economy was at full employment and, with inflation moving higher; she did not want to wait too long before tightening.
Data to watch: 9am German IFO Current Assessment, Business Climate & Expectations. 9.30am UK Q4 GDP and Total Business Investment. 10am EUR January Consumer Price Index & Core CPI, Targeted LTRO. 11am UK Monetary Policy Committee Member Cunliffe speech. 7am US Fed Minutes.