Positive UK data gives Sterling a helping hand

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Sterling had a relative good day yesterday (and it has been some time since we have been able to say that), halting recent declines following yesterday's economic reports on services output and retail sales that were slightly better-than-expected.

The UK Confederation of British Industry (CBI) retail report revealed sluggish retail sales growth in the first half of March however, the overall retail sales balance rose to 15 from 6 in February, well above the consensus forecast of -2.

Overnight the release of the latest UK consumer confidence figures from March also reported no further decline in confidence, confounding expectations of a further push lower. This data leaves one unanswered question: how will retail volumes (and margins) hold up in the face of tax hikes this year and rising unemployment? Such issues may put the majority of Bank of England MPC members in an uncomfortable position. Whilst they may consider higher interest rates are required, will raising interest rates now just compound the damage to consumer spending? 

UK services output also improved, bouncing up to 1.3% in January (well the weather has improved!) compared to December when activity fell -1.1%. It was the first gain in services output since September last year. 

In the Eurozone, industrial confidence defied expectations for a decline and remained at 6.6 in March, matching the series highs recorded since 1985 however, further inspection of the data showed that weaker confidence was reported in the retail, construction and services sectors. 

In the US, ADP private sector employment rose by 201,000 in March, an increase broadly in line with forecasts of a figure around 208,000. The data was encouraging ahead of Friday's non-farm payroll figure which, based on other improving evidence, is expected to show that the struggling labour market is turning the corner.

Today's data releases include German unemployment data for March and Eurozone consumer price inflation (CPI) followed by raft of US data and surveys (jobless claims, Chicago PMI and factory orders) in the afternoon. The CPI estimate should remain above the 2% target the European Central Bank (ECB) has for inflation however, ongoing fuel and food price inflation, the figure should not be too uncomfortable for the ECB. 

The ECB will be keeping an eye on the results of the Irish Central Bank stress tests at 4.30pm today, with initial estimates suggesting there will be a shortfall between €18bn-€27bn.