Lockdown: End Is In Sight

A FURTHER EASING IN ENGLISH RESTRICTIONS

Recent market volatility suggests uncertainty about the direction of the next major move. The possibility of a strong economic rebound continues to be weighed against concerns of a new Covid-19 wave that could lead to a restrictions remaining in place for longer than is currently anticipated. For the coming week, the economic calendar is light in the run-up to Easter. That means markets may again focus on Covid-19 news. A further modest easing in restrictions will occur in England on Monday. That in itself will probably have little economic impact but with more significant moves scheduled for April and May the impact of next week’s changes on the reported number of Covid-19 cases will be watched closely. The UK’s fairly sparse data calendar may still provide important insights into the potential strength of the economy’s rebound. Wednesday’s Q4 GDP report is a second estimate that is not expected to be revised from the initial reading of a 1.0% rise. However, the report will provide further information on household finances and in particular the household savings rate. This has climbed sharply during the pandemic primarily due to forced saving driven by a lack of spending opportunities. Q4 is expected to show a further rise and it is likely to have gone up again during Q1 due to the latest lockdown. That points to the possibility of strong pent-up consumer demand that will likely be released later this year.

US LABOUR MARKET IMPROVING ONCE AGAIN

In the US, the March labour market report will as usual will be seen as a bellwether of economic conditions. February posted a much stronger-than-expected employment gain of 379k. That was the biggest rise for four months and followed particularly disappointing out-turns for December and January. The pickup in payrolls and the slowing in weekly unemployment benefit claims have been seen as further evidence that economic growth is accelerating. Friday’s data is expected to show an even bigger rise and we look for a 660k increase on the month and a further decline in the unemployment rate to 6.1% (from 6.2% in February). The ISM manufacturing survey for March is likely to provide further evidence that economic activity is accelerating. As income support payments from the Biden administration fiscal package, which should just be soon landing in bank accounts, should provide a further boost to the near-term outlook.

EUROZONE ECONOMIC CONDITIONS

In contrast, conditions in the Eurozone economy remain more uncertain. Positively the March readings for the Eurozone PMIs and the German IFO survey both surprised on the upside this week. However, these will have been based on returns before the latest extension of restrictions were announced and so the updated PMI data – which will include later responses – may see a downward revision. Next week’s Eurozone CPI data for March is expected to show a rise in the annual headline inflation. However, that would still leave it well below the inflation target and the ECB is likely to regard the rise as temporary.

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