Daily Brief

Feeling the stimulus at last

Pessimism fades

America’s DJ30 equity index jumped 11%, its biggest one-day rise since 1933. The Japanese yen was Tuesday’s biggest loser, down 2.8% against sterling. After slumping on Monday, the pound rebounded by an average of 0.9%, strengthening by 2.1% against the USD and CHF and by 1.7% against the EUR. In essence, investors were suddenly much less pessimistic.

A large part of their renewed optimism (if “optimism” is not an exaggeration) came from the Federal Reserve’s pledge to provide limitless monetary support to the US Economy. They will also have been encouraged by the agreement of G7 finance ministers to do “whatever is necessary to restore confidence and economic growth and to protect jobs, businesses, and the resilience of the financial system”. While the politicians are still relying on their central banks to do much of the work, they at least pledged “to maintain expansionary policies for as long as needed”.

Another major thread of hope yesterday was the possibility that Congress and the White House could suspend their political differences to deliver up to $2 trillion of stimulus to American consumers and businesses. An agreement appears to be close, and the bill could become law by the end of the week. “At roughly $2 trillion, the measure would be, by far, the largest economic package ever approved by Washington. It's more than half the size of the $3.5 trillion the federal government expects to collect in taxes this year.”


Shrinking services

There was less to smile about among Tuesday’s economic data. As expected, the provisional purchasing managers’ index readings for March were almost all in the shrinkage zone below 50.

Britain reported a 48 for manufacturing, beating the 45 forecast, and a 35.7 for services, well below the optimistic prediction of 45. The composite index was 37.1, a record low. The data were compiled before the government ordered the closure of pubs and other leisure businesses. For pan-Euroland, the manufacturing and services readings were 44.8 and 28.4, with the composite measure at 31.4, also a record low. The US readings were 49.2 for manufacturing, 39.1 for services and 40.5 for the composite, another record low.

The CBI’s Industrial Trends Survey reported that “output expectations dropped to their weakest since the financial crisis” as the orders measure fell 11 points to 29. US new home sales were stronger than expected in February but still lower on the month.


Locked out data

The Office for National Statistics has begun to publish market-sensitive economic data at 0700h instead of 0930h. This is because coronavirus restrictions make it impossible to hold the usual “lock in” briefings for journalists ahead of publication. The first data to be released on this basis were the inflation figures for February.

The numbers were roughly in line with forecast; headline CPI inflation slowed from 1.8% to 1.7% and RPI was down from 2.7% to 2.5%. Factory gate prices were up by an annual 0.4% while manufacturers’ costs fell 0.5%.


Coming up this morning are business confidence measures from Germany and Switzerland, UK house prices (DCLG version) and the CBI’s Distributive Trades Survey of retail sales in March. US durable goods orders come out after lunch. UK retail sales data tomorrow will appear at the earlier time of 0700h.

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