Economic data was positive yesterday, but the question remains for how long given the inflationary background and recent hike in rates. Nationwide reported an increase in house prices of 14.3% in the year to March from 12.6% previously and the strongest annual reading since 2004. There was also an upward revision to the fourth-quarter GDP estimate to 1.3% from 1.0%.
Overall confidence in the UK economic outlook remained very fragile amid fears over the impact of a surge in energy costs which will stifle Bank of England (BoE) rate expectations.
Looking to the day ahead, the final manufacturing PMI is expected to be confirmed at 55.5, down from 58.0 in February, with input price inflation re-accelerating.
US Inflationary Pressures Remain as Focus Turns to Jobs Data
The US Dollar bounced off one-month lows against several major currency pairs on Thursday following the release of economic indicators and a fall in risk sentiment. The Federal Reserve’s (Fed) favoured measure of underlying US inflation pressures and the Personal Consumption Expenditure (PCE) Price Index reported that annual inflation in the US rose to 5.4% in February. It was below the expected reading of 5.5% year on year but above January’s 5.2% reading and will continue to pressure US policymakers to accelerate the pace of policy tightening. The Dollar index extended its rebound to above 98.5 on Thursday as investors look forward to the March US jobs report for fresh clues over the possibility of a 50-basis point hike.
Looking ahead to today, the Non-Farm Payroll data will be in focus as the last monthly report before the next Fed policy meeting in May. Fed Chair Jerome Powell has described the labour market as ‘red hot’ with concerns that accelerating wage growth is adding to the inflationary pressures. Expectations are for 500k new jobs added in March, with the unemployment rate expected to have fallen to 3.7% in March.
Eurozone Inflation Set to Increase
Germany recorded an unemployment decline of 18,000 for March after a 33,000 decline previously and a slightly smaller decline than expected while the Euro-zone unemployment rate edged lower to 6.8% from a revised 6.9% previously.
European Central Bank (ECB) Chief Economist Lane stated that policy settings should be adjusted if inflation expectations become de-anchored and added that it is especially important to be data-dependent. The French CPI inflation rate increased to 4.5% for March from 3.6% and the Eurozone data will be watched closely today as it is increased to a record high of 6.6%, but with concerns that the rate could be at least 7.0%.
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