April 22, 2022

“The British pound fell to its lowest level since late 2020 versus the dollar. Meanwhile, retail sales across the United Kingdom precipitated to as low as 1.4% as rising cost-of-living hits consumer confidence.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Jerome Powell has sent his strongest signal yet that the Federal Reserve is prepared to raise interest rates by half a percentage point at its meeting next month as the US central bank steps up efforts to fight soaring inflation. Powell believes that it is now appropriate “to be moving a little more quickly.” His comments underscored a shift in tone from several Fed officials, who have recently embraced the need for the central bank to take more forceful action to tame the highest inflation in 40 years. The view that the Fed should “front load” increases to its main policy rate, so it quickly reaches a “neutral” level that does not stimulate growth was held only by the most hawkish officials. Powell indicated tacit support for that approach, suggesting multiple half-point rate increases could be implemented this year. The Fed is also set to soon begin shrinking its $9tn balance sheet, aiming for a monthly reduction of as much as $95bn that is likely to officially kick off in June.

British consumer confidence has fallen to a near all-time low driven by concerns over the soaring cost of living, according to a closely watched survey, fuelling fears of a renewed economic downturn in the second quarter. Data shows that the UK consumer confidence index, a measure of how people view the state of their personal finances and wider economic prospects, crashed seven points to minus 38 in April, its lowest level since 2008 when it was minus 39. UK inflation rose to 7 per cent in March, reaching a 30-year high. The pressure on household budgets is expected to grow following a sharp jump in energy bills this month and the knock-on effects of Russia’s invasion of Ukraine. People’s confidence in their personal financial situation, which is closely linked to household spending habits, also fell. The fall in consumer confidence bodes ill for future spending appetite.

GBP

Sterling is weaker than most major currencies in the early morning trade. Boris Johnson has vowed that he will not retreat on his green agenda in spite of claims by parts of the Conservative party that the cost of developing renewable energy is driving up electricity bills. While on a trip to India, the British PM said the government was tackling the cost-of-living crisis and insisted that Rishi Sunak, the chancellor, would still be in his job to deliver a crucial Budget in the autumn. Steel boss James Brand raises his voice above the roar of metal being funnelled into a foundry furnace as he details how rampant costs have pushed him to raise his prices by 70%. Northern Ireland Office minister Conor Burns said that Britain may have to take unilateral action to address problems in Northern Ireland caused by Brexit arrangements.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. Emmanuel Macron maintains a 12-point poll lead over Marine Le Pen, the far-right challenger in the French presidential election, after a heated television debate on Wednesday night. As the election campaign entered its final days both candidates returned to the campaign trail to drum up what support they could before the vote on Sunday. Ukrainian fighters were clinging to their last redoubt in Mariupol today after Russian President Vladimir Putin claimed victory in the biggest battle of the war, declaring the port city “liberated” following weeks of relentless bombardment. Meanwhile, the mayor of Mariupol made a new appeal for the “full evacuation” of the southern Ukrainian city. The EU is asking its citizens to drive less, turn down air conditioning and work from home three days a week, to reduce reliance on Russian energy.

USD

The dollar is well bid against most major currencies overnight. Actions by the US and its allies to restrict Russia’s access to high-tech imports and parts has seen those shipments fall by more than 50%, frustrating the nation’s manufacturing and servicing efforts, Commerce Secretary Gina Raimondo said. Hedge funds and finance industry groups are laying the groundwork for litigation that threatens to jeopardise some of the top priorities for reforming markets following the collapse of Archegos, which are being pushed by Gary Gensler, the top US securities regulator. Joe Biden on Thursday predicted that his fellow Democrats could win two more US Senate seats in November’s midterms, strengthening the party’s majority to pass his agenda despite sagging approval ratings.

Markets

US equity-index futures and Treasuries swung between gains and losses as investors weighed Federal Reserve Chair Jerome Powell’s willingness to embrace front-loading of monetary tightening. Contracts on the Nasdaq 100 fell 0.2% after erasing losses at the European open, while those on the S&P 500 were also down 0.2%. European stocks tumbled, with the Stoxx 600 gauge down more than 1%. The dollar rose to the highest level since July 2020 amid declines in the British pound. Central bankers are stepping up efforts to quell some of the highest inflation in a generation. That shift is sapping investor sentiment, stoking market volatility, and eclipsing a robust start to the corporate earnings season. Traders have ramped up bets on Fed hikes, but there could be further to go. Nomura Holdings Inc. now expects the Fed to raise rates by 75 basis points at both its June and July meetings, following a 50-basis point hike in May.

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

8:00 a.m.: UK March retail sales
9:15 a.m.: France April S&P Global PMIs
9:30 a.m.: Germany April S&P Global PMIs
10:00 a.m.: Euro area April S&P Global PMIs
10:00 a.m.: Norges Bank 1Q survey of bank lending
10:30 a.m.: Italy February current account balance
10:30 a.m.: UK April S&P Global PMIs
12:00 p.m.: UK sells bills
3:00 p.m.: ECB’s Lagarde speaks
3:45 p.m.: US April S&P Global PMIs
4:30 p.m.: BOE’s Bailey speaks
7:00 p.m.: Baker Hughes US rig count

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