The slower growth globally has finally led to the markets revising their forecasts for the year, not only for a rate hike for the BoE but also the Federal Reserve. The Fed earlier in the week slashed 50bp from its median expectation for rates by the end of 2016. Markets started this year with a bullish Dollar view based on potentially four rate hikes throughout 2016, which of course, is not the case. Last week’s Fed forecasts alluded to only one rate hike this year and the continued dovish tone and weakening global economy sent the Dollar substantially lower last week.
The Annual budget and BoE kept UK markets entertained. The BoE rhetoric was not as expected as the Central Bank leaned towards a rate rise rather than a rate cut, boosting the Pound on Thursday afternoon. The BoE also said that the “BREXIT referendum may delay some spending decisions and slow growth in the near term” and the committee “remain watchful for signs for low inflation”. Overall the annual budget was a relatively tame affair, the Chancellor played on the morning’s bullish labour data and also threw in the odd warning of the risk of Brexit in today’s speech. Corporate tax however was lowered, giving businesses a slight boost in terms of cash flow.
A slow start to the week is seen today as no high tier data is released, with only Existing Homes Sales gauge being posted from the US later today. However, over the weekend and dominating the front pages today is the Tories' Iain Duncan Smith resigning from his post as Work and Pensions Secretary. His departure on Friday evening, followed his attack on the budget from Chancellor, George Osborne stating it was ‘deeply unfair’ and that they were creating further social divides. Cameron now has to deal with this divide within his party with further pressure also coming from the Brexit referendum.
UK inflation will be the biggest data that markets will look to see if prices do slightly increase as expected. The y/y figure is forecast to increase slightly to 0.4% and with price pressures seen around the globe any upward figure is a welcome sign. From the Eurozone, Germany post their ZEW Economic Sentiment and also their Ifo business climate with both expected to improve on previous releases.
The middle of the week is due to quieten down with only New Home Sales released from the US. An improvement on new homes being sold will show that consumer confidence is high as consumers are still willing to borrow money despite the recent rate increase from the Fed.
This is expected to be another busy day just before the UK Easter weekend, as the Monthly Retail Sales will be released in the UK, but anything above last month’s 2.3% would see support for the Pound. Later from the US, the release of Core Durable Goods will be posted and eagerly watched by the markets for signs of further indication of the Fed raising rates sooner than expected.
The final reading of Q4 GDP from the US will be released and is expected to be the same as the previous reading of around 1%. The UK and Eurozone will be closed due to the Easter bank holidays.