Morning Report

April 12, 2022

“The Bank of Russia claims to have enough holdings in yuan and gold, reducing the impact of sanctions on its holdings of dollars and other currencies. Russia has reduced exposure to US dollars for several years, and their share of dollar reserves were cut to 10.9% in January, from 21.2% a year earlier. Meanwhile, their yuan holdings rose to 17.1%, from 12.8% a year earlier.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The Biden administration is bracing for the key consumer inflation report today, to show that the prices Americans pay soared in March, as Russia’s assault on Ukraine caused energy prices to jump. White House press secretary Jen Psaki said yesterday that the Labor Department’s previous report — which showed prices rising at a dramatic rate in February — failed to include the majority of the jump in oil and gas costs caused by the Kremlin’s invasion. Labor Department data has for several months shown that year-over-year price jumps have been hitting levels not seen since Ronald Reagan was in the Oval Office. The February reading showed benchmark consumer inflation index rose 7.9% over the last 12 months, the highest level since January 1982. The press secretary noted that President Joe Biden has taken several steps to help lower energy costs, including a move to release about 1 million barrels of oil a day from the nation’s Strategic Petroleum Reserve.

Rishi Sunak has referred himself to Boris Johnson’s ethics watchdog as he continues to face questions about his family’s financial affairs. The chancellor wants Lord Geidt – the PM’s adviser on ministers’ interests – to check if he followed the rules. Mr Sunak’s wife, Akshata Murty, last week announced she would start paying UK tax on her overseas earnings. Ms Murty owns £700m in shares of the Indian IT giant Infosys – founded by her father – from which she received £11.6m in dividend income last year. The BBC estimates she would have avoided £2.1m a year in UK tax through her non-domicile status. She will now pay tax on her overseas earnings, but her domicile remains in India, where she has said she intends to eventually return. But Labour says Mr Sunak still has questions to answer about transparency and whether he has used tax havens. No 10 has confirmed the prime minister accepted Mr Sunak’s request for a review by Lord Geidt, with Boris Johnson said to have full confidence in his chancellor.


Sterling is well bid against most major currencies overnight. Britain’s unemployment rate fell to 3.8% in the three months to February, slipping further below its level immediately before the coronavirus pandemic, official figures have showed. The last time the British unemployment rate was lower than 3.8% was in 1974. British retailers reported weaker annual sales growth last month, reflecting growing pressure on consumer spending as well as seasonal factors around the timing of Easter which typically brings a boost to spending. The British Retail Consortium has estimated that prices among its members rose by 2.1% in the year to March – the biggest such increase in 11 years. The Bank of England and economists are closely watching retail data for signs of a drop-off in consumer spending, as households face what government forecasters predict will be the biggest cost-of-living squeeze since records began in the 1950s. British gas and electricity bills are likely to rise by a further £500 this autumn as the war in Ukraine weighs on wholesale energy prices.


The euro is weaker than most major currencies in the early morning trade. Russia has enough holdings in yuan and gold, even after the US and its allies imposed sanctions on its reserves in dollars and other currencies, Bank of Russia Governor Elvira Nabiullina said in her annual report to parliament yesterday. Continuing a multi-year effort to reduce exposure to the US currency, the central bank cut the share of dollars in reserves to 10.9% as of the 1st of January, from 21.2% a year earlier. But euro holdings rose to 33.9% from 29.2%, the central bank said. Yuan holdings rose to 17.1% from 12.8% a year earlier, while gold was down slightly, at 21.5%. Russian officials said the sweeping sanctions, imposed as a result of the invasion of Ukraine, has frozen about half of its $642 billion in reserves. The war in Ukraine and the ensuing economic sanctions imposed on Russia will cause far bigger shifts for Europe’s economy and markets than previous crises like the coronavirus pandemic, some economists have predicted.


The dollar is stronger against the euro and weaker against sterling this morning. Long-term US Treasury yields jumped to a three-year high, fuelling a global rise in borrowing costs as traders intensified bets on aggressive rate hikes from major central banks. Ten-year US yields climbed through 2.75% for the first time since March 2019, as investors priced in the impact of the Federal Reserve’s tightening plan and accelerating inflation. Traders are betting the Fed will enact about nine more quarter-point rate hikes by year-end, which would be the fastest policy tightening since 1994. US President Joe Biden’s administration has finalised a set of new regulations targeting untraceable “ghost guns”. The new rules come as Mr Biden faces increasing political pressure to act against a rise in gun violence. The rule bans businesses from selling kits that can be used to create a gun at home without serial numbers.


Stocks fell Tuesday and the 10-year Treasury yield jumped to the highest since 2018 ahead of an inflation print that’s set to bolster the case for aggressive Federal Reserve policy tightening. Europe’s Stoxx 600 shed about 1%, while US equity futures posted smaller drops. MSCI Inc.’s Asia-Pacific equity index was down for a second day. China alleviated some of the gloom, rebounding on speculation that officials may take steps to shore up economic growth amid Covid lockdowns. US Treasuries declined, taking the 10-year yield past 2.80%, as the global bond rout continued. A dollar gauge is on its longest winning streak since 2020. Both trends reflect expectations that the Fed will implement its fastest monetary tightening since 1994. The euro weakened. Oil staged a partial recovery after a tumble that saw crude erase most of the gains sparked by Russia’s invasion of Ukraine. China’s virus outbreaks and mobility curbs, in pursuit of a controversial Covid-zero strategy, are imperilling demand.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Germany March Wholesale Price Index
8:00 a.m.: UK March Jobless Claims Change, Feb. Unemployment
8:00 a.m.: Germany March CPI
8:00 a.m.: Romania March CPI
8:45 a.m.: France Feb. Trade Balance, Current Account Balance
9:00 a.m.: Turkey Feb. Industrial Production
11:00 a.m.: Germany April ZEW survey
12:00 p.m.: Portugal March CPI
OPEC Monthly Oil Market Report

Corporate Events

Earnings include Evotec, Jumbo, Asos, Albertsons, CarMax


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