Markets rose from their lows of last week on Monday (27 February) after Prime Minister Rishi Sunak reached a new trade deal with the European Commission president after four months of negotiations. The Brexit deal, known as the ‘Windsor Framework’, looks to resolve the issue of imports and border checks in Northern Ireland which have been at the centre of post-Brexit tensions. The agreement looks at creating ‘green’ and ‘red’ lane routes, meaning that goods going into Northern Ireland through the green lane will see checks and paperwork significantly reduced, while red lane goods will still be subject to normal checks. The agreement is a positive development and the news, which for once did not involve interest rates and inflation, was welcomed by markets. Sterling rallied, rising by 0.9% against the U.S. dollar and hitting a session high of around $1.2051 following the news.
It wasn’t long before the market’s attention was shifted back to inflation with CPI data from France and Spain coming in hotter than expected, putting further pressure on the European Central Bank to raise rates. Economic sentiment in the Euro Area edged down to 99.7 in February of 2023, below market forecasts of 101. Investors will now be looking to preliminarily Eurozone CPI data due later this week to gauge how much further the ECB will go in the face of economic resilience and signs that inflation is starting to look sticky.
Consumer Confidence in the US also fell in February to 102.9, down from 106 in January 2023. Consumers expressed optimism about current economic conditions but were becoming more pessimistic about the next six months according to a Conference Board.
Also in the US, durable goods orders fell 4.5% on month in January, greater than the 4% fall expected. The fall was largely due to a drop in orders for transportation equipment, namely orders for nondefense aircraft and parts (-54.6%). However, in other areas beyond transportation and communications there was a pickup in orders and business investment rose at the fastest pace in five months, continuing the strong trend of economic data from the US and the economy’s resilience.
The Hang Seng jumped 4.2% this week after Hong Kong announced the end of its mask mandate both indoors and outdoors from 1 March, ending the last major Covid restriction in the city. China’s manufacturing purchasing managers’ index (PMI) jumped to 52.6 from 50.1 in January 2023 (above the 50-point mark that separates expansion and contraction in activity). The latest reading came in greater than forecasts of just 50.5 and was the highest reading since April 2012. Markets reacted positively to the news that the world’s largest manufacturer is now back online. Vietnam’s industrial output also rose in February, a further sign of economic growth picking up pace in Asia and recovery in the global demand of goods
Looking ahead to this coming week we have US ISM and Eurozone CPI inflation and Eurozone unemployment.
Kate Mimnagh, Portfolio Economist