Figures released yesterday continued to paint a mixed picture of UK economic activity. Net consumer credit was relatively strong, at £0.5bn in February, although this was perhaps not particularly surprising given the sharp jump in retail sales last month. More sobering was the outturn for mortgage approvals. Despite better weather, the number of mortgage applications dropped to a seven-month low of 47.1k in February, with demand falling further following the end of the stamp duty holiday for low cost homes at the start of the year. While the Chancellor’s decision to remove stamp duty on the purchase on homes below £250k for first time buyers in last week’s Budget should provide a boost to applications over the coming months, the forthcoming rise in taxation and the fragility of the labour market pose formidable counterweights to a sustained improvement in housing activity. policy makers from different political groups were preparing for a debate over the path they would take should their party win the general election that will have to take place on or before June 3rd. The Conservatives’ Treasury spokesman Osbourne has suggested he could trim the nation’s deficit by an additional 12 billion pounds. While the growth implications are still up in the air, such promises are attractive considering Standard & Poor’s reaffirmed its “negative” along with the UK’s top credit rating. As for scheduled event risk, February mortgage approvals fell to a nine-month low as reduced supply is leveraging prices. On the other hand, net consumer credit for the same month hit a 15-month high of 500 million pounds, pointing to a thawing credit market. Today, the focus in the UK turns to the final Q4 GDP data. Lloyds expect Q4 GDP growth to be left unchanged at 0.3% on the quarter. Although somewhat dated, the report will provide more detail on the drivers of economic activity in the final months of last year, with the household saving ratio likely to attract particular attention. We expect the saving ratio slipped back a little in Q4, although judging by recent data, it may have risen again in recent months.
In Eurozone, The Economic Sentiment Indicator rose to 97.7 in March.Confidence in the eurozone improved in March. yesterday, the European Commission published its closely watched Economic Sentiment Indicator (ESI), which came in at 97.7 up by 1.8 points with respect to the previous month.Details of the survey reported that confidence continued to increase at rapid pace in the industrial sector. By contrast confidence in the services sector (more domestically oriented) was stable in March, remaining rather weak by an historical point of view.After falling in the previous month, consumer confidence stabilized in March. Consumers are still rather cautious and are unlikely to increase markedly their expenditures any time soon. This data confirm the ongoing recovery in the eurozone. External demand is likely to continue to support activity in the coming months, while domestic demand is likely to remain subdued over the coming months. In Germany, Inflation up to 1.1% in March.CPI inflation rose to 1.1% in March.Regional data showed that base-effects linked to energy underpinned inflation. Over the month, prices increased only by 0.5% (after +0.4% m/m in February). Seasonal food prices and energy prices sharply increased. EUR/USD has once again returned to 1.35, a level that probably will be somewhat magnetic until Friday when the US jobs report is due. Currencies are set to trade on risk sentiment today and in particular we see the pro-cyclical ones in demand for the day. AUD and CAD could advance further while the USD will probably be on the back foot.
The main event will be the US Conference Board consumer confidence for March, which is expected to show a healthy recovery following the previous month’s disappointing setback. Attention will in particular be focused on the details assessing the labour market as this report usually provides a good lead to real developments. Elsewhere, Case-Shiller consumer prices for January are due. Finally, Fed’s Evans is due to speak. US stocks rose yesterday, sending the S&P500 index to an 18-month high, after consumer spending increased for a fifth consecutive month and European confidence in the economic outlook improved. Nine out of 10 industry groups in the S&500 index climbed after Commerce Department figures showed 0.3% growth in February purchases, in line with analyst estimates. The index gained 0.6% to 1,173 and is thereby up 5.2% since 31 December, heading for the biggest quarterly rally since 1998.
The Hungarian central bank meeting delivered yet another 25 basis points rate cut, bringing its key policy rate to a new record low of 5.50%. Given that the MNB has already cut fairly aggressively and given the upcoming elections, which could create some volatility on Hungarian markets, we cannot see further monetary easing going forward. The Hungarian three-month rolling unemployment rate jumped to 11.4% in the period December-February, up from November-December’s 10.8%. Looking ahead Danske expect unemployment to continue heading upward in the coming months.
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