Early Morning Call: UK economy officially avoids recession, but housing market decline worsens

Indices overview

European equity markets are hesitant this Friday, but are nonetheless poised to post their second weekly gains in a row.

Overnight in Asia, Japan stocks were the best performers, boosted by a set of macroeconomic indicators. Industrial production rose 4.5% in February compared to January. Leading the rise was car production, up 15.4%, as the shortage in semiconductors eased last month. Retail sales increased by 6.6% in February from a year earlier, logging a 12th straight month of gains, and above the median market forecast for a 5.8% gain.

The International Monetary Fund (IMF) said the Bank of Japan (BoJ) should avoid a premature exit from monetary easing and outline conditions for raising its negative interest rate in order to improve its communication.

In China, manufacturing activity expanded in March for a third straight month, although at a slower pace than in February. The official NBS manufacturing PMI came in at 51.9, after 52.6 in February, exceeding expectations of 51.5. The services sector was stronger, with activity expanding at the fastest pace in nearly 12 years. Non-manufacturing PMI jumped to 58.2 versus 56.3 in February.

In the UK, the economy grew 0.1% in the fourth quarter (Q4) compared to the previous quarter, according to the final estimate published at 07:00. The Nationwide house price index fell 3.1% in March year-on-year (YoY).

In Germany, retail sales decreased by 1.3% in February month-on-month (MoM), more than the 0.5% decline expected. A bit later this morning, the unemployment rate is forecast to remain at 5.5%.

Yesterday Germany's consumer price index (CPI) came higher than expected. Even though CPI in the EU's largest economy decelerated to 7.8% in March YoY from 9.3% the previous month, it was nonetheless higher than the 7.5% anticipated by the market. This sent EUR/USD higher.

France also announced a higher than anticipated CPI for March at 5.6%.

Equities

Elsewhere on the equity market, Netflix is restructuring its film group to make fewer movies each year and centralise decision-making.

Bloomberg reports that the group will combine units that produce small and midsize pictures, a change that will result in a handful of layoffs and the departure of two of its most experienced executives.

Commodities

Oil prices are little changed this Friday. Reuters, citing five delegates, revealed earlier that OPEC+ is likely to stick to its existing deal to cut oil output. The organisation is set to meet virtually on Monday.

Last November, OPEC+ reduced its output target by two million barrels per day. The same reduction is likely to apply for the whole of 2023, according to Saudi Arabia's Energy minister.

On the soft commodities market, sugar's rally continues, now at its highest since July 2021. Earlier this week we were talking about how sugar production in the Indian state of Maharashtra, Thailand and Southern China, three of the world's top four producers, was in decline due to unfavourable weather conditions. Now, the European Union says it expects a decline in production of sugar beet this season, and a fall in the planted area for the 2023/24 season. This could lead to a rise in imports.

Also rising, New York cocoa now trades at a two-year high, continuing a rally that started in mid-March, leading to gains of more than 11%, so far. The rise is partly due to tight supplies from the world's largest cocoa producer Ivory coast, where port arrivals have been running behind last year's pace.

As we said here earlier this week, this is not a production issue. In fact, Ivory Coast expects a good mid-crop, and Ghana, the world's second largest producer, is poised to produce a larger crop this season.