The UK economy is well on track for a roaring year of growth as consumers are released back into the wild with months of pent-up demand accumulated during the lockdown.  Britain is set for its best year since 1988, with growth forecasts for the year up to 5.7% this month from 4.7% last month.  The times has a detailed overview here.

The Bank of Canada has become one of the slowly growing number of central banks moving towards tighter monetary policy.  Expectations were split between remaining on hold, and a cut to its bond buying programme, and it was a cut of $1bn per week that they delivered.  While the cash rate remained unchanged at 0.25%, GDP forecasts were upgraded and they now expect sustained inflation of 2% by the end of next year, which puts them into the 1-3% target range.  With most central banks leaning on transitory inflation as an excuse to keep monetary policy loose, this reference to sustained inflation puts them at the more hawkish end of the spectrum. The Canadian Dollar was the top performer yesterday up over 1% vs its US counterpart.

The ECB is expected to take a slightly more cautious approach today and it appears the options market is more concerned about a dovish tilt with demand for EUR/USD downside protection picking up over the last couple of days in the options market.  This is perhaps not a huge surprise, given the move back above 1.2000 this week for the first time since early March.  The meeting today is expected to pass without much fanfare.  Rates are expected to remain on hold with no risk of any change to the bond buying programme expected until at least June.  Lagarde may be pressed on how long bond buying will continue at this current accelerated pace with some officials hinting that the ECB could possibly exit the pandemic bond buying program in under a year.

Today’s decision follows a boost for the region’s recovery provided by Germany’s top court as it allowed the country to ratify the EU’s 800bn euro pandemic recovery fund, while a lawsuit is still pending.  The commission is not allowed to raise debt in capital markets unless the underlying legislation has been ratified in all 27 EU member states.  In Germany’s case, that requires the signature of the president, Frank-Walter Steinmeier, who now can proceed.

Mario Draghi is looking to make the most of this support package as he is set to announce his plan to reengineer Italy’s economy.  More than 200bn euro will be directed towards six key priorities, with the largest chunk (approximately 70bn euro) going towards a green transition.  The spending blueprint sees 40% of funds to be diverted to the south, whose perennial struggles are no secret and an announcement expected in the coming days before the April 30 deadline, which forms part of the process for the fund to be operational in June this year.

Credit Suisse has reported a loss of 252m Swiss Francs in the first quarter after being hit by a two-punch combo resulting from its exposure to both the Archegos hedge fund and Greensil.  The bank has announced that it has now exited 97% of its trades related to the hedge fund but was one of the few who were left holding the bag when others were quick to get out.  They have taken a hit of 4.4bn Swiss Francs stemming from this client alone and now its risk management control function has been thrust into the limelight, facing proceedings from Finma, the Swiss regulator.  The Credit Suisse share price is down over 30% from the beginning of March and it is now raising an extra 1.7bn Swiss Francs of capital in a bid to shore up its balance sheet.

On a macro level, risk sentiment is looking well supported heading into today’s session with equities trading higher yesterday and the dollar pushing lower.  The ECB rate announcement is at 12:45pm today and the press conference 45 minutes later.  This is the key risk event to round off the week before flash PMIs from the UK and Europe tomorrow morning.

Have a good day.

This report was brought to you by Dan Quigley 

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