Pound stays higher after recent UK data

OVERNIGHT

Asian equity markets are slightly lower for the most part amid mixed corporate earnings results and ongoing assessments of global economic prospects. The Fed Beige Book released late yesterday signalled moderating activity with reports of tightening credit standards in several districts following recent stresses in US regional banks. Fed policymakers still appear on course to raise interest rates next month but may decide to pause thereafter.

THE DAY AHEAD

Today’s market attention is likely to be dominated by central bank speakers. The Bank of England’s Tenreyro will speak as a panellist at a conference on the return of inflation. She is a dovish MPC member who voted not to raise interest rates at the last meeting (the majority voted for a 25bp rise). There are also several ECB speakers including remarks from President Lagarde and Executive Board member Schnabel, as markets assess by how much the ECB will likely raise interest rates at the next policy meeting in May. The minutes (account) of the ECB’s March policy meeting, when rates were increased by 50bp, will be released at 12:30BST. The US Federal Reserve’s Mester, Bostic and Harker are expected to speak about the economic outlook.

In terms of data, there are no major UK or Eurozone reports due later today, but UK consumer confidence and retail sales will also be released early Friday. US data this afternoon include existing home sales and the Philadelphia Fed manufacturing survey. Initial jobless claims will also be watched with signs that tech and financial layoffs announced earlier in the year are now starting to show up in the data. 

UK retail sales are expected to have fallen in March after two months of increases. We look for a 1.2% decline (excluding auto fuel). There are some indications that sales are being boosted by people substituting meals and recreational activity at home (mostly including in retail sales) for external socialising (not included), but nevertheless the underlying pace of growth likely remains subdued. More positively consumer confidence is expected to have risen modestly for the third month in a row in April, although the level is still low by historic standards.

MARKETS

Major currencies remained in narrow ranges overnight with the pound staying higher following yesterday’s UK inflation upside surprise. Markets are fully priced for a 25bp hike by the BoE in May and are also now discounting some further increases over the summer months.