Daily Financial Market Outlook

Overview & economic commentary

UK consumer confidence data released earlier this morning revealed a surprise rise in household optimism in March. The index rose for a second successive month, climbing to -30 from -35 in February, a 10-month high. However, fears of rising unemployment and the adverse impact on personal finances may keep a lid on personal spending, even if households turn less pessimistic on the economic outlook over the next 12 months. BoE deputy governor Tucker will testify this afternoon to the House of Lords Sub-Committee of Economic and Financial Affairs where he could comment on the economy and the functioning of the Bank's asset purchase facility and QE. Euro zone data is this morning forecast to show a sharp drop in annual CPI to below 1% in March. Weaker than expected CPI data from Germany last week should contribute towards a steep fall in euro zone wide consumer prices. The ECB has already factored in the prospective fall of annual CPI towards zero around the middle of the year, but concerns must be growing at the governing council that a more prolonged recession could keep inflation exceptionally low for longer than previously thought. This should encourage the ECB to cut interest rates on Thursday to 1%. Consumer confidence is also due in the US later this afternoon. A small increase is possible for March following the rise in the Michigan index. The rating of employment prospects is among the more closely monitored sub-indices as participants try to get a better read on the possible outcome of non-farm payrolls on Friday. The Chicago PMI may show a small drop in March.

Currency commentary

Equity markets continue to look vulnerable to bad economic and corporate news after the Nikkei extended its losses overnight for a 2nd successive session. Fears about the US car industry and the downgrade yesterday of Hungary's LT debt to BBB- have spurred a flight-to quality and we suspect this theme will stay in vogue for most of the week and will be accompanied by high volatility. The S&P 500 closed below 800 last night and could face very choppy trading conditions ahead of NFP. The biggest G10 faller in fx yesterday was the nok, until a few days ago still the preferred currency among many participants. Even though some of the heavy losses (9% or so over the past week) were reversed overnight, one wonders whether $/ nok has re-entered a trading range or whether this is a good entry point to go long the nok. In EM, €/huf trimmed gains overnight but is still supported close to 310.0 on Hungary's downgrade, with losses also spreading to other eastern European currencies like the zloty and Czech koruna. $/C$ could extend above 1.225 later today if Canadian data disappoints.

Major data and events today

• UK Consumer confidence (GfK) (00:01)
  Feb -35
  Mar (actual) -30
• German unemployment (sa, rate) (08.55)
  Feb +40K Rate 7.9%
  Mar (f'cast) +60K Rate 8.0%
  Median +53K Rate +20K:+80K
• EU-16 CPI (10:00) (flash)
  Feb Y-O-Y +1.2%
  Mar (f'cast) Y-O-Y +0.7%
  Median +0.7% Range +0.5%:+1.0%
• US House prices (S&P/CaseShiller)(Jan)(14:00)
  Dec Y-O-Y -18.6%
• Chicago PMI (14:45)
  Feb 34.2
  Mar (f'cast) 34.0
  Median 34.7 Range 28.3:36.0
• US Consumer confidence (15:00)
  Feb 25.0
  Mar (f'cast) 28.0
  Median 27.0 Range 23.0:35.0
• Canada IPPI (13:30)
  Jan -0.1%
  Feb (f'cast) +0.5%
  Median +0.5% Range -0.6%:+0.5%
• Canada RMPI (13:30)
  Jan +1.4%
  Feb (f'cast) +1.0%
  Median +0.3% Range -1.5%:+2.0%
• Canada GDP, monthly (13:30)
  Dec -1.0%
  Jan (f'cast) -0.5%
  Median -0.6% Range -1.1%:-0.2%
• US Fed member Stern speaks (14:00)
• BoE Deputy Governor Tucker testifies to the House of Lords (14:00)
• US Fed member Plosser speaks (18:00)

Chart of the day: Data this morning may show Euro zone annual CPI dropped below 1% in March

Lloyds TSB Bank
http://www.lloydstsbfinancialmarkets.com

Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.