April 19, 2022

“St. Louis Federal Reserve Bank President, James Bullard, once again reiterated his case for increasing interest rates to 3.5% by the end of the year, starting with at least 50-bps in May, to slow down what are now 40-year-high inflation readings. A possibility of a 75-bps move is not ruled out.”

Tim Hallinan – Trading Director

Main Headlines

Federal Reserve Bank of St. Louis President James Bullard said the central bank needs to move quickly to raise interest rates to around 3.5% this year with multiple half-point hikes and that it shouldn’t rule out rate increases of 75 basis points. “More than 50 basis points is not my base case at this point,” Bullard said in a virtual presentation to the Council on Foreign Relations yesterday, adding the Fed under Alan Greenspan did such a hike in 1994 leading to a decade-long expansion. Fed Chair Jerome Powell has said that a 50 basis-point increase is possible at the Fed’s May 3-4 meeting. Comments by colleagues since then have hardened expectations they will make that move, as officials extend a hawkish pivot to curb the hottest inflation since 1981. Minutes of their March meeting showed many Fed officials favoured raising rates by a half point and only opted for the more cautious 25 basis-point move because of the uncertainty around Russia’s invasion of Ukraine.

British Prime Minister Boris Johnson will face angry lawmakers today for the first time since being fined for breaking the law, as the “party gate” scandal continues to plague him. The UK leader has weathered the initial storm after being penalised last week for breaching Covid lockdown laws on one occasion in 2020, doggedly defying calls to resign. But the PM can expect a bruising few days as the House of Commons returns from its Easter break, with MPs demanding to know why he repeatedly insisted to them that no rules had been broken. Boris Johnson is now expected to make a “full-throated apology” to MPs. The PM is expected to make a statement in the House of Commons later today, following a Cabinet meeting, as MPs return to Westminster. His statement will come a day after a public opinion poll by JLPartners found that Mr Johnson is widely regarded as “a liar” by the British public.

GBP

Sterling is weaker than most major currencies in the early morning trade. Record numbers of UK business leaders expect operating costs to soar this year as inflation proves stickier than thought, according to a survey by Deloitte. The accounting firm’s latest quarterly survey of chief finance officers at leading British companies found that 98% believe operating costs will rise in the year ahead, a level not seen since the question was first asked in 2011. Communities in Suffolk are threatening the UK government with legal action after business secretary Kwasi Kwarteng last month approved two controversial wind farms off England’s east coast Cabinet Office minister Jacob Rees-Mogg has written to cabinet colleagues urging them to send a “clear message” to the civil service about returning to the office. The government efficiencies minister said there was “much further to go” to reach pre-pandemic levels.

EUR

Euro is well bid against most major currencies overnight. European Union officials return to work today after basking in a balmy bank holiday. But, just over the border, the EU’s future is being fought over in the French presidential election. The European Central Bank decided to maintain its present ultra-low interest rate policy at its meeting last Thursday and sought to create the impression in its monetary policy statement that it had the increasingly turbulent economic and financial situation in the eurozone under control. Russian forces tried to push through Ukrainian defences along almost the entire front line in eastern Ukraine today, launching what President Volodymyr Zelenskiy called the “Battle of the Donbas,” the long-awaited second phase of the war. Greece is considering measures to curb soaring electricity prices and mitigate the impact on consumers if the European Union does not take action on the issue soon, Greek government spokesman Giannis Oikonomou said on Monday.

USD

The dollar is stronger against sterling and weaker against euro this morning. A senior official at the Treasury department has pushed back on warnings that the sweeping sanctions package announced by the US and its allies against Russia risks fracturing the international economy, vowing instead to take further retaliatory action if necessary. The Biden administration will no longer enforce a US mask mandate on public transportation, after a federal judge in Florida on Monday ruled that the 14-month-old directive was unlawful, overturning a key White House effort to reduce the spread of COVID-19. Soon after the announcement, all major carriers including American Airlines, United Airlines and Delta Air Lines, as well as national train line Amtrak relaxed the restrictions effective immediately. Louisiana authorities lifted a shelter-in-place order within five hours of issuing it after a chlorine leak this morning.

Markets

Stocks in Europe declined as markets reopened after a holiday amid hawkish comments by Federal Reserve officials and Russia’s renewed campaign in eastern Ukraine. Travel and leisure stocks led the decline in the Stoxx Europe 600 index. The energy sector was in the green after crude oil’s best run of gains this year, while raw-materials stocks also rose as copper and other industrial metals climbed. US futures were modestly higher after stocks ended little changed yesterday. China dropped as investors assessed measures to tackle economic headwinds from Covid-led lockdowns. Treasury yields steadied after the long end declined this morning. Disruptions to supply chains from China’s lockdowns and to commodity flows from the war are keeping pressures on central banks to act to rein in runaway prices at a time when global growth is tipped to slow. The World Bank cut its forecast for global economic expansion this year on Russia’s invasion.

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

2:00 p.m.: Poland March CPI
2:30 p.m.: U.S. March housing starts
5:30 p.m.: U.S. sells $34 billion 52-week bills
6:05 p.m.: Fed’s Charles Evans addresses Economic Club of New York
6:30 p.m.: SNB’s Thomas Jordan speaks in Washington
IMF/World Bank spring meeting continues
BNEF Summit through April 20

Corporate Events

Earnings include Netflix, Johnson & Johnson, IBM, Lockheed, Prologis, Halliburton, Citizens Financial, First Horizon, Hasbro

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