Cherry-picking

This Wednesday is UK Budget day, where we’ll learn how the government will attempt the delicate balancing act of supporting businesses and the unemployed, while ‘levelling up’ the country and repairing the UK’s yawning budget deficit. Chancellor of the Exchequer, Rishi Sunak, has already warned us of upcoming increases to corporate tax—though not how far it may rise—but this week we should learn more about the other Robin Hood-style support aspirations for the rest of the country. 

The Financial Times published an article about a UK infrastructure bank to be set up in Northern England and capitalised with ‘an initial £12bn of equity and debt capital and a further £10bn of government guarantees.’ In November last year, this institution’s stated aims were to replace £2.4bn of EU structural funds and move 20,000+ civil servants from London to a northern campus. Mr Sunak is also proposing a £5bn grant scheme aimed at the retail sector, which would result in payouts of up to £18,000 per business. Perhaps, not surprisingly, the third measure of note is yet another attempt to buoy the UK’s housing market by introducing government guarantees on loans for 95% of asset value, which some critics have dubbed the ‘right to sell’ scheme. All told, it will be an exciting day. Expect loads of post-mortem analysis from financial news media, breaking out the costs and economic projects.

Bottom line: The positive message accompanying these measures focus once again on the speed of the vaccine programme, which has surpassed 20m vaccinated persons in the UK and aims to inoculate all adults by July this year. These strides have supported some optimistic forecasts for the UK economic recovery in the second half of the year, but with Brexit teething issues in the background, the forecast confidence must be rather low. After all, the Office for Budget Responsibility will have also made a series of assumptions about resolving ongoing Brexit disruptions, which may be viewed as verging on delusional when we consider our experience since the turn of the year. Mr Sunak hopes to get everything through as quickly as possible before the next Brexit headlines give his opponents the chance to cry foul.

The week ahead

GBP

After a positive start to the week for Sterling, the currency suffered from the rout in global bond markets, a move to a risk off sentiment, which ultimately led to a sell off in the Pound. These effects were compounded with the news that US President Joe Biden had passed the $1.9 trillion stimulus package in the House, boosting confidence in the US Dollar. The UK vaccination campaign continues to take the limelight as 20 million people have now received their first dose. The OBR has projected if this pace continues, the UK is on track to record 2019 levels of output by the beginning of next year and have the best year of growth in 2021 seen in the last 50 years.  

  • The final UK Manufacturing PMI is due on Monday and forecast at 54.9, unchanged from February.
  • The final UK Services PMI is forecast at 49.7, also unchanged from February, due out on Wednesday.
  • The next Budget is to be announced by Chancellor Rishi Sunak on Wednesday.
  • Monetary Policy Committee member Silvana Tenreyro speaks at 4:00pm Wednesday, while Jonathan Haskel is scheduled to speak at 2:00pm Friday.
     

EUR

The Euro lost ground against the Dollar at the end of the last week as a result of the sharp rise in bond yields. To prevent any headwinds to the recovery in Europe, ECB policymaker Yannis Stournaras called for an increase in bond purchases to mitigate the impact of the sell off on the cost of borrowing. The call for such measures could increase, as the EU attempt to avoid any unnecessary tightening in growth prospects on their way out of the pandemic. The hope of rapid growth hinges on the vaccine efforts around Europe which look to be improving. The procurement problems faced earlier in the year seem to be almost solved. However, it remains to be seen how effectively these can be rolled out to the general population. 

  • ECB President Christine Lagarde is due to speak on Monday.
  • German Unemployment Change is released on Tuesday, forecast at -17K vs -41K in January.
  • Europe CPI flash estimate y/y is forecast to come in at 0.9%, unchanged from February. While the core CPI flash estimate y/y predicted to read 1.1% vs 1.4% in February.
  • The Euro Area unemployment rate looks to remain unchanged from 8.3% in February.
     

USD

The Dollar got a boost last week as Joe Biden’s administration successfully passed the $1.9 trillion stimulus package through the House. However, it looks unlikely that the legislation will pass in its entirety as the minimum wage increase from $7.25 to $15.00 an hour has not been met with overwhelming support. The hope is for the stimulus to be rolled out by mid-March to enable the US to vaccinate its population as quickly as possible in order for the economic recovery to begin. The US is already gathering considerable pace, vaccinating almost 1.5 million people a day.  

  • The ISM Manufacturing PMI is forecast to come in at 58.7, unchanged from February. The ISM Services PMI is forecast to remain at 58.7 unchanged from February.
  • Federal Open Market Committee members Lael Brainard and Mary Daly are due to speak on Tuesday.
  • ADP Non-Farm Employment Change is forecast to reach 170K vs 174K in February.
  • OPEC-JMMC meetings will take place on Thursday.
  • Federal Reserve Chair Jerome Powell will speak on Thursday.
  • Non-Farm Employment Change is predicted to come in at a healthier 133K vs 49K in February.  
  • Unemployment Rate data looks to remain relatively unchanged at 6.4% vs 6.3% in February. ​​​​​
     

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