UK traders await Spring Budget, while Powell testimony looks to dominate US session

• UK construction PMI on the rise
• Spring Budget tax cuts unlikely to shift public opinion
• US ADP, JOLTS, and Powell testimony due

Markets are in recovery mode this morning following a session that saw sharp declines across risk assets globally. In the UK a welcome jump in the construction PMI figure took it within touching distance of its first expansion since September. Most notably a stabilisation in house building brought hope that the sector will start to expand once again in the coming months. With financial conditions easing ahead of the first Bank of England rate cut, we are seeing confidence return for the house builders. Unsurprisingly investors are reacting in response, with the likes of Persimmon, Barratt Development, Bellway, and Taylor Wimpey all rising in early trade.

The UK remains in focus today, with the chancellor presenting his Spring budget later on in the day. With Rishi Sunak well behind in the polls the conservatives will hope that fresh raft of tax cuts will somehow turn the tide on public opinion. This seems unlikely given the fact that Jeremy Hunt pulled the same trick back in autumn to no avail. The Conservatives poor standing in the polls does increase the likeliness that they will hold off on an election until after one final budget, with BoE rate cuts expected to provide additional headroom with which the government can potentially announce a blockbuster cut to income tax this Autumn.

Looking ahead, the US jobs market comes into focus as a driver of market sentiment, with the ADP payrolls and JOLTS job openings data due. While many disregard the privately compiled ADP payrolls report given its questionable correlation with Friday’s headline figure, it does at least provide the basis for markets to gradually turn their attention to the jobs market ahead of the main jobs report. Arguably the bigger ticket item will be Jerome Powell’s testimony as we seek to gauge an idea of whether markets and the Fed are finally aligned in their thinking. Yesterday’s comments from the typically dovish Fed member Bostic signalled that rate cuts could be spaced out, calling for two cuts with a pause in between to avoid a sharp inflationary surge in business activity. While markets have been reigned in to now just expect three rate cuts this year, the inflation pathway does highlight a possibility that the Fed does even less than that.