Market mood continues to fluctuate

OVERNIGHT

Most Asian equity markets are up this morning following gains in US and European markets yesterday. Reports suggest that investor was boosted by indications the US is studying a legal framework to allow the guarantee of all bank deposits. In Australia, the minutes of the latest central bank meeting noted that the case for a pause in interest rate hikes would be considered.

THE DAY AHEAD

The attention of markets continues to be on the fallout from recent problems at some banks and in particular whether these issues are relatively isolated or potentially more systematic. As the US Federal Reserve is due to update on monetary policy tomorrow and the Bank of England on Thursday, markets are likely to be much more focused on speculating whether those meeting are likely to lead to further interest rate hikes than they are on today’s calendar. Nevertheless, there are a number of things of note.  

Just released data for UK public finances showed a February borrowing figure of £15.9bn, which is almost £10bn above the deficit at the same point a year ago. That seems consistent with last week’s forecast from the Office for Budget Responsibility that the borrowing figure for the current financial is likely to be at least modestly above last year, primarily because of the subsidies to offset higher gas prices. Nevertheless, as the OBR confirmed last week, the full borrowing outturn for 2022/23 looks as though it will come in around £25bn lower than looked likely last autumn due to better-than-expected economic conditions.

UK Chancellor of the Exchequer Hunt is scheduled to testify to a House of Lords Committee this afternoon. Given that the Committee recently released a report on labour supply issues Hunt may be questioned closely on whether last week’s announcements on pensions and childcare are likely to make much difference to the labour shortage problem.

The German ZEW survey will provide one of the first indications on March Eurozone economic activity. Expectations are likely to have slipped reflecting new uncertainties. In the US, new home sales are forecast to have risen in February. The recent fall in US bond yields points to lower mortgage rates and so potentially a further rise in sales ahead.  

February UK Inflation data will be released early Wednesday. We expect both headline and core annual CPI inflation will have eased again, with the former slipping below 10% for the first time since last August.

MARKETS

Global bond yields rose yesterday reflecting the slightly more positive tilt in market sentiment. However, US Treasury yields have fallen again overnight. In currency markets, the US fell against both the euro and sterling yesterday and has only partially rebounded overnight.