Good morning,

Hammond’s budget tows the line

UK Chancellor Hammond’s reforms were predictable, forecastable and not in any way surprising – just as he intended. This year’s growth forecast has been upgraded but, crucially, longer-term growth expectations have either remained unchanged or been revised lower, suggesting the OBR believe recent economic strength is a front-loaded outlier, not a new normal. Other tax tweaks are to be net neutral in fiscal terms, despite Hammond quietly conceding that public spending will still be running £100bn higher as a direct result of the EU referendum result last year. The budget had relatively little impact on the pound, which still trades with a relatively comfortable margin above 2017 lows against the dollar of 1.2007.

Fed’s March rate rise now nailed-on

Yesterday’s ADP employment change figures (the private sector equivalent of the all-important Nonfarm Payrolls – due Friday) were the highest for three years and came in at over 40,000 higher than even the most optimistic analyst forecast. This rate of jobs growth signals that the extra slack in the labour market is diminishing at a rate not foreseen by either institutional or private economists, and a rate rise must follow to temper inflation. With the odds of a rate hike in March now approaching 90%, the dollar’s rise yesterday extended overnight, lifting the post-data gains in the dollar index to 0.5%.

Mixed Chinese inflation figures paint a difficult picture for the PBoC

It appears it’s not just the UK that’s beginning to come under pressure from rising prices facing producers; China’s Producer Price Index came in well above expectations at 7.8% – rising at its fastest pace since the Beijing Olympics in 2008. As is usually the case, this either means higher consumer-facing prices are in the pipeline or lower corporate profits are an inevitability. The offshore Yuan weakened in response, despite credit risk being a far greater threat than anything posed by the country’s inflation picture for now.

Draghi under pressure to take his foot off the accelerator

At present, the European Central Bank’s policy for 2017 has effectively been pre-announced: government and corporate bond purchases are to continue (albeit at a reduced rate from April) until the end of the year. When the rate of inflation was well below target, the ECB President Mario Draghi insisted this was the figure to watch – it appears that he may have to go back on his word sooner than he’d have liked as Eurozone inflation struck 2.0% in February. Today’s meeting could be the first at which it becomes apparent that the more prudent members of the ECB (Germany, Estonia, Netherlands, Austria and Finland) are putting pressure on Draghi to take his foot off the accelerator. The influential ECB press conference will take place at 1330GMT today.

Have a great day.