Market Update

This week saw Pound gain strength against the Euro (0.2%) as well as the Dollar (0.76%), following the Prime Minister’s announcement of a deal with the EU to amend the original Northern Ireland Protocol. 

This should help resolve some of the tension caused by 2020 post-Brexit arrangements relating to Northern Irelands open border with the Republic of Ireland.

Not much data out this week and the highlights so far include:

An on-forecast EU Consumer Confidence Final (FEB)- which came in at -19%, a slight improvement from previous but still well below neutrality. That said, consumer confidence is the highest it has been since last February on expectations that inflation has slowed, with energy prices easing due to mild weather and a stronger likelihood that the trading block will be able to avoid a recession.

Surprisingly, consumer confidence has been improving 5 months in a row now with future financial situations expected to increase as well as improved consumer intentions to make major purchases.

Economic Sentiment and Industrial Sentiment came in below forecast, A combination of rising interest rates, a high inflation environment & high energy prices (as well as the after effects of covid) has caused industries to feel

far less positive about the economic outlook than the general public.

In the USA Durable Goods Orders Mom (JAN) saw a 0.5% drop to -4.5%, echoing a negative sentiment across US manufacturing industry with fewer companies committing to orders with manufacturers

Orders Exc Transportation came out 0.7% higher than forecast, this would suggest that transport costs may still be too high and certainly have a direct impact on goods production.

The only other notable data so far was American CB Consumer Confidence which came in 5% below forecast but is 2.9% above neutral territory.

Slightly more data out today, which includes:

UK Nationwide Housing Prices YoY (FEB), which was forecast to drop by 0.2%, but actually came in 0.4% lower than previous.

This would come as no surprise as the housing market has started to cool down and a recent Reuters poll suggests that house prices will fall in 2023, by 8% on average.  This  can be attributed to higher interest rates and fewer financial products on the market and most lenders taking a far more stringent approach with affordability assessment and LTVs.

The drop in house prices reflects the multiple consecutive interest rate hikes that has seen rates rise by 3.75% in the last 12 months – interest rates last Feb rose from 0.25% to 0.5% when BOE met on 02 Feb 2022.

That said UK Mortgage Approvals (JAN) is forecast to rise by 2.4K.  This may be due to a ‘buyers’ market’ – wherein the fall in house prices has meant that demand has also fallen and this usually encourages more cash rich investors, who are less reliant on conventional financing and for whom affordability is less of an issue. Mortgage Lending on the other hand is expected to drop by 23% this year due to the cost of living pressures and rising interest rates on affordability.

Also new lending to buy-to-let landlords and property transactions overall are expected to drop by 27% and 21%, respectively.

In the afternoon, German Inflation YoY Prel (FEB) is expected to drop by 0.2% to 8.5%, which shouldn’t alter the ECB’s hawkish stance to continue raising rates in March and beyond.

And then USA ISM Manufacturing PMI (FEB) is forecast to improve by 0.4%.

Declining activity in factories across American has been contracting 3 months in a row till January, which saw lowest reading since May 2020. Companies are said to be slowing output to better match demand in the first half of the year and prepare for growth in the second half of the year.

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