Macroeconomics: The Day Ahead for 3 March

There is a plentiful run of data and events for markets to ponder today, even if the primary drivers continue to be concerns about valuations / bubbles, and whether central banks will be forced into a volte face on their pledge for ‘lower for a long time’. Statistically there are Australia’s Q4 GDP (much better than expected), Asian Service PMIs, UK BRC Shop Prices and Turkish CPI & PPI to digest, while ahead lie European, UK and US Services PMIs, US ADP Employment and Brazilian Q4 GDP. In theory, the UK Budget should be the highlight of the event schedule, but with so much leaked in advance of the official presentation to Parliament, it will be the post Budget presentation trawl through the proverbial ‘fine print’ which may provide the usual ‘stealth’ surprises. A further swathe of ECB, BoE and Fed speakers accompany the latest Fed Beige Book, while Exxon Mobil’s Investor Day will likely be the highlight in terms of corporate news, while the govt bond auction schedule has 15-yr in Germany and Canadian 2-yr. Brainard’s comments yesterday were largely unsurprising, reiterating the Fed’s current mantras on rates, policy targets and timelines. But she also said she was “paying close attention to market developments, some of those moves and the speed of the moves caught my eye. I would be concerned if I saw disorderly conditions or persistent tightening in financial conditions that could slow progress toward our goals.” On market valuations and bubbles she repeated: “The assessment recently has been that we have seen some signs of stretched valuations but those are not broad at this juncture.”

World – February Services PMIs

Today’s Services PMIs are unlikely to offer any meaningful fresh insights, in so far as sharper activity and movement restrictions are likely to weigh heavily in UK and Europe (though obviously not nearly as severe as in Q2 2020), but with considerably less restrictions in the US, Services are expected to expand at a solid pace. Key points of interest will be price indices which are elevated despite generally subdued levels of activity, and in the US whether the ISM Employment sub-index rebound to pre-pandemic level was a case of frequent volatility in this sub-index, or a signal of better levels of labour demand in the sector, as the US economy opens up.

U.K. – Budget

As noted above, much of what will be announced today has been leaked, with an extension of the furlough scheme (as of end January it was covering 4.7 Mln employees) and self-employed schemes beyond the current end April expiry, as well as the business rates ‘holidays’ for hospitality, leisure and retail. VAT relief and Universal Credit uplift measures are also set to be extended, and a new loan scheme for companies encumbered by the pandemic is also due to be announced. In terms of clawbacks for revenues, a freezing of personal income tax allowances and a step by step rise in corporation tax from the current 19% to 25% is also mooted, as are some measures to boost the attractiveness of IPO listings in London, some further details on funding a national infrastructure bank, and a fund to invest in tech sector start-ups.

U.S.A. – Feb ADP Employment / Beige Book

A solid 200K rise following January’s 174K rise is expected, with surveys point to continued strength in Manufacturing and a pick-up in Services due to easing of lockdown measures. However the divergence with Private Payrolls (Jan +6K) could be even larger this month due to the run of bad weather events, given that the ADP measure counts active employees, whereas the Establishment survey only counts those that have actually been paid. Per se the always tenuous read across from ADP to the official data will be even less valid. In terms of the Beige Book, the key points of focus will business optimism on the outlook and how this is impacting labour demand, and secondly the impact of supply chain disruptions both on output and prices.