Easing global concerns dominate domestic developments

Concerns about the strength of the global economy have eased over the past month, boosting market sentiment. This comes despite ongoing worries about the upcoming EU referendum and domestic activity indicators, such as February’s Markit/CIPS PMI, suggesting that the recovery has lost some momentum. The improvement in sentiment has led to a rise in market-implied expectations for Bank Rate which has flowed through to an increase in gilt yields. The interest rate movements have been similar to changes in the US, suggesting anticipated potential changes in Wednesday’s Budget and Thursday’s MPC decision have had limited impact. Equity prices surged as a rally in oil and metals prices supplemented the improving sentiment, with the FTSE 100 recovering almost all of its losses experienced so far this year. We think that commodity prices and equities will continue to recover this year, partly as worries about global growth turn out to be overblown.