April 13, 2022

“New Zealand’s Reserve Bank Monetary Policy Committee have lifted the official cash rate by half a percentage point to 1.5% today – it’s biggest interest-rate hike in 22 years – sparking concern from policymakers around the world to step up efforts to reel-in inflation.”

Tim Hallinan – Trading Director

Main Headlines

US President Joe Biden has said his Russian counterpart Vladimir Putin is committing “genocide” in Ukraine, where concerns are mounting over the killing of civilians and the prospects of a new Russian offensive in the country’s east. Up until this point, the Biden administration has avoided using the term “genocide” because of its strict legal definition and the heavy implication the accusation carries. However, Biden’s comments come just days after Ukraine accused Russian forces of attacking a train station in the eastern town of Kramatorsk, killing more than 50 people, and as images of bodies on the streets of towns near Kyiv continue to draw global condemnation. Following this, the White House is preparing to announce a new military aid package for Ukraine as early as this week – worth $750 million – with equipment that appears specifically aimed at helping Ukrainian forces fight Russia in the eastern Donbas region.

Boris Johnson and Rishi Sunak have rejected calls to resign, despite being fined by police for breaking lockdown rules in Downing Street in June 2020. The prime minister, the chancellor and the PM’s wife all received fixed penalty notices for attending a birthday gathering for the PM in No 10. As a result, Mr Johnson became the UK’s first serving prime minister to be sanctioned for breaking the law. All three apologised, but opposition MPs say the PM and Mr Sunak must quit. Speaking yesterday, the PM said he accepted “in all sincerity that people had the right to expect better” from him. He claimed the event he was fined for attending – a gathering in the Cabinet Room to mark his birthday – was “brief” and lasted “less than 10 minutes”. He added, “in all frankness, at that time it did not occur to me that this might have been a breach of the rules. But, of course, the police have found otherwise, and I fully respect the outcome of their investigation.”

GBP

Sterling is weaker than most major currencies in the early morning trade. Prices are rising at their fastest rate for 30 years, driven by increased fuel prices and energy bills. Inflation rose by 7% in the 12 months to March, the highest rate since 1992 and up from 6.2% in February, according to the Office of National Statistics. British Prime Minister Boris Johnson and US President Joe Biden discussed boosting military and economic support to Ukraine yesterday, as well as the need to end Western reliance on Russian oil and gas. Meanwhile, Britain’s armed forces minister said yesterday that “all options are on the table” for a Western response if Russia is found to have used chemical weapons in Ukraine. He spoke as unverified reports on social media alleged that Russian forces might have used chemical weapons in the besieged port city of Mariupol. Ukraine’s Deputy Minister of Defense Hanna Malyar said the reports were being investigated.

EUR

The euro is well bid against most major currencies overnight. Ukraine’s security services made a statement yesterday, stating that they had arrested pro-Russian politician Viktor Medvedchuk, who is President Vladimir Putin’s closest and most influential ally in Ukraine. President Volodymyr Zelenskiy had earlier published a photo of a tired-looking and handcuffed Medvedchuk, who says Putin is godfather to his daughter. Meanwhile, President Vladimir Putin said that peace talks with Ukraine had hit a dead end, using his first public comments on the conflict in more than a week to vow that his troops would win and to goad the West for failing to bring Moscow to heel. In the strongest signal to date that the war will grind on for longer, Putin said Kyiv had derailed peace talks by staging what he said were fake claims of Russian war crimes and by demanding security guarantees to cover the whole of Ukraine.

USD

The dollar is stronger against sterling and weaker against the euro this morning. Joe Biden has unveiled a new plan to widen the availability of petrol blended with corn-based ethanol, as the US president seeks to curb soaring fuel costs in the United States, linked to the Russian war in Ukraine. Fears about the outlook for global economic growth among large institutional investors have risen to their highest level in more than a quarter of a century, as Russia’s war in Ukraine enters its third month. A net 71% of fund managers in March said they expected the global economy to weaken over the next 12 months, according to a Bank of America survey. Stagflation – an unwelcome combination of below trend economic growth and above trend inflation – is now anticipated by two-thirds of the fund managers surveyed. That marks the worst reading for this measure since August 2008, the month before the implosion of Lehman Brothers.

Markets

Stocks were mixed and bond yields rose today, as investors weighed inflation risks against the start of the earnings season. Europe’s Stoxx 600 was little changed, while US equity futures rose. The dollar ticked up and the yen declined. Oil slipped after Russian President Vladimir Putin vowed to continue the war in Ukraine and China partially eased Covid curbs. Markets continued to digest yesterday’s US inflation data, as a smaller-than-expected jump in the core gauge – which excludes volatile food and energy prices – prompted traders to pare back expectations on how aggressively the Federal Reserve will raise interest rates. Investors are bracing for the latest earnings season as they evaluate the threat from inflation, amid concerns that rising commodity costs and more circumspect consumers will end up squeezing company profits. Top oil trader Vitol Group said it intends to completely stop trading Russia-origin crude and products by the end of this year.

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

8:00 a.m.: UK March CPI; RPI; PPI
9:00 a.m.: Spain March CPI
10:00 a.m.: Italy Feb. industrial production
10:30 a.m.: UK Feb. House Price Index
11:00 a.m.: Greece Feb. unemployment rate
2:00 p.m.: Poland Feb. trade balance
4:00 p.m.: Bank of Canada rate decision

Corporate Events

Earnings include JPMorgan, BlackRock, Infosys, Delta Air, Tesco, Barry Callebaut

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