April 5, 2022

“Australia’s central bank opened the door to the first interest rate increase in more than a decade amid inflationary pressure and unemployment rate falling faster than expected to 4.0% – a surprise that sent the Australian dollar to nine-months highs.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The US stopped the Russian government from paying holders of its sovereign debt more than $600 million from reserves held at American banks, in a move meant to ratchet up pressure on Moscow and eat into its holdings of US dollars. Under sanctions put in place after Russia invaded Ukraine on February 24, foreign currency reserves held by the Russian central bank at US financial institutions were frozen. But the Treasury Department had been allowing the Russian government to use those funds to make coupon payments on dollar-denominated sovereign debt on a case-by-case basis. On Monday, as the largest of the payments came due, the US government decided to cut off Moscow’s access to the frozen funds, according to a US Treasury spokesperson. The move was meant to force Moscow to make the difficult decision of whether it would use dollars that it has access to for payments on its debt or for other purposes, including supporting its war effort.

Costs for UK manufacturers have “shot up in an unprecedented manner,” according to official statistics that point to the price of food rising further later this year. Supply chain challenges, increasing costs and labour shortages have all pushed up prices for UK food and beverage manufacturers. UK food and beverage consumer prices rose at an annual rate of 5.1 per cent in February, the fastest pace in more than a decade. Food manufacturers are particularly exposed to the rise in energy costs as about one in five have variable electricity prices, a higher proportion than in the other industries. Faced with the rising cost of living, about one-third of respondents said they had spent less on food shopping and essentials in March, a strong rise from a few months ago, adding weakening demand to manufacturers’ challenges.

GBP

Sterling is well bid against most major currencies overnight. Developers have warned that Boris Johnson must “radically” reduce planning approval and grid connection times for renewable projects such as wind and solar or risk failing to deliver on promises to enhance the UK’s energy independence. The UK prime minister is expected to publish an energy security strategy aimed at reducing the UK’s exposure to international commodity markets in response to Russian president Vladimir Putin’s war in Ukraine. The UK government has defended its decision to end free mass Covid-19 testing in England. Johnson’s spokesman said it was “unsustainable” for the taxpayer to continue to spend £2bn a month on free lateral flow and PCR tests for the general public. UK holidaymakers have been warned to expect disruption when travelling over the spring and summer, as airlines struggle to rehire staff following the pandemic.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Volodymyr Zelensky has warned that Russians would begin a campaign to “hide their guilt” in the territories of Ukraine that remain under Moscow’s control, after its troops retreating from Kyiv’s suburbs in recent days left behind the corpses of hundreds of civilians. Europe is planning new sanctions to punish Moscow over civilian killings in Ukraine. Thousands of auto workers have been furloughed and food prices are soaring as Western sanctions pummel the small Russian city of Kaluga and its flagship foreign carmakers, with more sanctions likely to come German Finance Minister Christian Lindner on Monday rejected a European Union embargo on Russian gas imports as mounting civilian deaths in Ukraine increase pressure on the bloc to impose sanctions on Russia’s energy sector. A crushing election victory over a united opposition has given Viktor Orban a fourth consecutive term as Hungary’s prime minister.

USD

The dollar is weaker than most major currencies in the early morning trade. Joe Biden has called for Vladimir Putin to be tried for war crimes as western leaders prepared a fresh round of economic sanctions against Moscow amid mounting global outrage over claims of civilian killings by Russian soldiers in Ukraine. According to Mary Daly, president of the US central bank’s San Francisco branch, the case for a half-point interest rate increase at the Federal Reserve’s next policy meeting in May has grown in the latest sign that it is readying aggressive moves to root out high inflation. More than 7.2 million cubic feet of natural gas escaped in a leak at a key Alaska oil field, forcing workers to evacuate and cutting production last month. The White House urged Congress to move quickly on $10 billion in funding for COVID aid after bipartisan agreement was reached on Monday, a sum that is less than the $22.5 billion President Joe Biden’s administration wanted.

Markets

European stocks and US equity futures were steady on Tuesday, while crude oil climbed as investors evaluated the prospect of tougher sanctions against Russia for alleged atrocities during the war in Ukraine. The Stoxx Europe 600 index opened higher but quickly erased the advance, though energy stocks outperformed. The European Union said work is under way on tightening sanctions, while the US said it may impose further penalties this week. The US Treasury also ratcheted up pressure on President Vladimir Putin by halting dollar debt payments via American banks. Market moves are continuing to be shaped by the ramifications of the conflict and tightening monetary policy as raw-material costs stoke inflation. The Fed minutes later this week will guide expectations for how rapidly the US central bank will increase rates and reduce its bond holdings.

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

8:00 a.m.: Riksbank’s Floden speaks
8:00 a.m.: Russia March S&P Global services, composite PMIs
8:30 a.m.: Sweden March Swdebank/Silf services, composite PMIs
8:45 a.m.: France Feb. industrial production
9:15 a.m.: Spain March S&P Global services, composite PMIs
9:45 a.m.: Italy March S&P Global services, composite PMIs
9:50 a.m.: France March S&P Global services, composite PMIs
9:55 a.m.: Germany March S&P Global services, composite PMIs
10:00 a.m.: Euro-area March S&P Global services, composite PMIs
10:30 a.m.: U.K. March S&P Global/CIPS services, composite PMIs; March official reserves
11:00 a.m.: U.K. to sell bonds
Romania rate decision

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