April 29, 2022

“The British pound slid to a 21-month low against a buoyant US dollar that also reached multi-year highs against both the Japanese yen and the euro – it is anticipated that a repricing of market expectations for the Bank of England base rate could weaken sterling further.”

Tim Hallinan – Trading Director

Main Headlines

The United States Congress has passed lend-lease legislation that will make it easier to export military equipment to Ukraine, reviving a World War II-era US weapons financing programme. The new plan will help those affected by Russia’s invasion of Ukraine, including Poland and other Eastern European countries. Two months into the war, members of Congress said they hoped the act would work as it did eight decades ago by allowing US companies to quickly resupply partner nations without having to clear bureaucratic hurdles. Following this, President Joe Biden asked Congress to pass a proposed $33 billion Ukraine aid package, including more than $20 billion in military aid and other security assistance. The supplemental funding request includes $16.4 billion for the Defense Department, $8.5 billion in economic assistance, and $3 billion for humanitarian assistance and to fight food insecurity.

The British pound tumbled yesterday to a 21-month low against a buoyant US dollar that also hit multi-year peaks against both the Japanese yen and euro. Analysts predict that a repricing of market expectations for the Bank of England base rate could weaken the pound further. The British pound has declined almost 5.5% this month, on track for its worst monthly performance since October 2016. Meanwhile, Boris Johnson’s tough new stance on the post-Brexit status of Northern Ireland has set off alarm bells in the Treasury, where officials fear it could provoke the EU into starting a trade war that would worsen the cost-of-living crisis. Johnson told ministers this week to come up with ways to cut the cost of living, but Treasury officials fear a trade war would push up prices further. The legislation has been drawn up in conditions of secrecy by Johnson, with foreign secretary Liz Truss and Northern Ireland secretary Brandon Lewis.

GBP

Sterling is well bid against most major currencies overnight. The British public’s expectations for inflation have fallen after rising for several months, according to a survey that the Bank of England keeps track of as it considers how fast it needs to keep raising interest rates. The BoE is expected to raise borrowing costs for a fourth consecutive meeting on the 5^th of May, taking Bank Rate to 1.0%, its highest since 2009, and investors are waiting for signals from the central bank about further increases. The BoE has been rolling out new requirements on so-called operational resilience, requiring Britain’s banks to speed up their recovery from outages which disrupt service for customers to avoid undermining public confidence in the financial sector, the BoE said in a statement yesterday. British house prices rose less than expected this month after expanding in March at the fastest pace since 2004, figures from mortgage lender Nationwide revealed yesterday.

EUR

The euro is stronger against the dollar and weaker against sterling this morning. Growth in several of the eurozone’s biggest economies weakened sharply during the first quarter, raising the spectre of stagflation in a region blighted by soaring energy and food prices. Economists have warned that if Russia’s gas squeeze widens, Europe could be pushed into a recession. The European Commission’s Executive Vice-President Valdis Dombrovskis has warned that Brussels is willing to launch legal action against EU countries that allow their energy companies to pay for Russian gas in roubles – which constitutes a violation of EU sanctions. Meanwhile, the European Union’s proposals to abolish tariffs for some Ukrainian products has been warmly welcomed by Ukrainian President Volodymyr Zelensky. Food and drink were Ukraine’s primary exports to the EU in 2021, followed by chemicals, raw materials, and other manufactured goods.

USD

The dollar is weaker than most major currencies in the early morning trade. Democrats in Congress – accusing oil companies of gouging and profiteering that has raised gasoline prices – yesterday promised legislation to allow the US Federal Trade Commission and state attorneys general to go after them. On Tuesday, infectious disease expert Anthony Fauci told PBS NewsHour that “we are certainly, right now, in this country, out of the pandemic phase.” However, White House press secretary Jen Psaki refuted this, saying “we also know COVID isn’t over, and the pandemic isn’t over” and Fauci has since walked back his claims. Yesterday, Apple reported quarterly results that topped analysts’ projections despite supply shortages, economic fallout from the Russia-Ukraine war, and a comedown from the huge sales lift that technology products and service got from pandemic restrictions.

Markets

Stocks in Europe rose Friday as China’s pledge to ramp up stimulus buoyed optimism and strong earnings continued to roll in. The Stoxx Europe 600 Index climbed 1%, helped by the region’s exporters for whom Chinese raw-material demand is key. US equity futures pared losses sparked by post-earnings slumps in Amazon.com Inc. and Apple Inc., though contracts on the technology-heavy Nasdaq 100 underperformed. Treasuries declined, taking the 10-year US yield to 2.85%, as investors gird for aggressive Federal Reserve interest-rate hikes to tame high inflation. In foreign-exchange markets, the yen snapped a slide while staying near 20-year lows. The euro, pound and commodity-linked currencies made gains while the dollar dipped. The latest US data showed that the world’s largest economy unexpectedly shrank for the first time since 2020 – reflective of an import surge tied to solid consumer demand, it suggests that growth will return imminently.

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

7:30 a.m.: France 1Q GDP
8:00 a.m.: Germany March import price index
8:00 a.m.: Sweden March household lending
8:00 a.m.: UK April nationwide house price
8:00 a.m.: Norway March credit indicator growth
8:45 a.m.: France April CPI
9:00 a.m.: Spain March retail sales, 1Q GDP
10:00 a.m.: Poland April CPI
10:00 a.m.: Euro-area March M3
10:00 a.m.: SNB’s Jordan speaks
10:00 a.m.: Italy 1Q GDP
10:00 a.m.: Germany 1Q GDP
11:00 a.m.: Euro-area April CPI
11:00 a.m.: Italy April CPI
11:00 a.m.: Italy to sell bonds
11:00 a.m.: ECB’s de Cos speaks
11:00 a.m.: Euro-area 1Q GDP
12:00 p.m.: Italy March PPI
12:00 p.m.: UK to sell bills
12:30 p.m.: Russia rate decision
2:30 p.m.: US March PCE deflator
7:00 p.m.: Baker Hughes US rig count

Corporate Events

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