April 4, 2022

“The euro edged lower, slipping 0.15% versus the dollar, as Germany and France are determined to impose new sanctions on Russia amid clues of war crimes in Ukraine.”

Tim Hallinan – Trading Director

Main Headlines

The US recorded strong jobs growth in March as higher wages lured more workers back to the labour force, giving the Federal Reserve another data point supporting more aggressive monetary policy to tame inflation. Employers in the US added 431,000 jobs last month, a cooler pace than the upwardly revised 750,000 positions created in February and less than Bloomberg’s consensus forecast of 490,000 jobs, but still a substantive increase in a tight labour market. On Friday, US president Joe Biden said fewer unemployed Americans meant more families had more “breathing room”, but acknowledged that inflation, which is running at its fastest pace in 40 years, remains far too high. He noted that gas and food prices have increased following Russia’s invasion of Ukraine, and flagged his administration’s move this week to order a “historic release” of about 180mn barrels of oil from the US emergency stockpile in a bid to cool crude prices.

UK government officials are in talks with British bankers to provide a permanent replacement to the various programmes that helped banks lend to struggling companies during the pandemic. Officials at the Department for Business, Energy and Industrial Strategy have been sounding out bank executives for views about how the new loan guarantee scheme should work, according to several people close to the talks. The government backed £77bn of bank lending over the past two years through a number of temporary schemes that gave a guarantee to banks for any losses from borrowers unable to repay the money. One government official said that there had been no decision yet about whether to proceed with the new programme but added that there was an “acceptance” that a permanent scheme would be needed in part as a buffer from any future disruptive events. He added that the decision still needed to be signed off by Treasury ministers.

GBP

Sterling is well bid against most major currencies overnight. Boris Johnson said Russia’s “despicable attacks” on innocent Ukrainian civilians in Bucha and Irpin are “yet more evidence” of war crimes. He added that the UK would not rest until justice had been served, as he confirmed extra funding and the deployment of specialist investigators to assist the International Criminal Court’s investigation. Downing Street staff have been issued with fines by police over a party that took place the night before Prince Philip’s funeral. A renewed surge of COVID-19 in Britain has forced airlines including easyJet to cancel hundreds of flights in recent days as staff sickness levels soar. A cabinet minister has rejected calls for the UK to consider rationing energy, as a plan to drastically increase onshore wind power also appeared to be significantly scaled back.

EUR

Euro is weaker than most major currencies in the early morning trade. The 19 countries sharing the euro are suffering from rising inflation according to figures stemming from March that shows the inflation rate rose to 7.5%. The European Central Bank’s inflation target is 2% and inflation in food prices, services, energy, and durable goods has risen well above the target. With the ECB having persistently underestimated inflation over the past year, the figure will come as a shock to policymakers, some of whom are already calling for tighter policy to avoid high price growth becoming entrenched. Hungarian Prime Minister, Viktor Orban, scored a crushing election victory to clinch a fourth consecutive term, overcoming criticism about democratic backsliding and close ties with Vladimir Putin. French President Emmanuel Macron said that a new round of sanctions targeting Russia were needed and that there were clear indications Russian forces were responsible for the killings of civilians in the Ukrainian town of Bucha.

USD

The dollar is stronger against euro and weaker against sterling this morning. As Joe Biden moved to open US strategic oil reserves, his two biggest oil-producing allies have kept their tanks firmly shut. The UAE and Saudi Arabia continue to rebuff the US president as he attempts to counter soaring oil prices prompted by Russia’s invasion of Ukraine. Both countries have been unusually frank about their refusal to step in. The Saudi and Emirati refusal to bail Biden out has pushed relations between the Gulf states and Washington to an unprecedented low. The extraordinary flow of Russian wealth to Dubai, just as the US and Europe try to strangle Putin’s economy, has inflamed things further. Growing evidence of Russian war crimes in Ukraine are “a punch to the gut”, the US secretary of state Antony Blinken said on Sunday, promising that America would join its allies in documenting the atrocities to hold the perpetrators accountable.

Markets

Stocks in Europe struggled for traction and US index futures slipped as traders weighed the latest developments in the Ukraine war, with some European governments pushing for stiffer sanctions on Russia amid reports that its troops executed unarmed civilians. The Stoxx Europe 600 index fluctuated at the open, with banks and car makers leading declines. The healthcare sector outperformed as Roche Holding AG climbed after the US Food and Drug Administration gave a priority review for its Covid-19 drug Roactemra. Futures on the S&P 500 and Nasdaq 100 slipped. Futures on the S&P 500 and Nasdaq 100 edged lower. Treasuries dipped on the prospect of sharp Federal Reserve interest-rate hikes to fight inflation. WTI crude oil climbed above $100 a barrel as traders weighed threats to demand from China’s Covid outbreak and moves to tap strategic reserves to enhance supply and curb elevated energy costs.

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

8:00 a.m. Germany Feb. trade balance
9:00 a.m.: Turkey March CPI, PPI
9:00 a.m.: Spain March unemployment
10:30 a.m.: Euro-Area April Sentix Investor Confidence
11:05 a.m.: BOE’s Bailey speaks
4:00 p.m.: BOE’s Cunliffe speaks
4:00 p.m.: U.S. Feb. factory orders, durable goods
5:30 p.m. U.S. to sell $57 billion in 13-week bills, $48 billion in 26-week bills

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