February 17, 2022

“The Ruble is the worst performer in emerging markets, weakening 1.7% against the dollar. Threat of possible sanctions is eclipsing the nation’s strong fundamentals.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Federal Reserve officials are set to raise interest rates next month and would be willing to tighten monetary policy more quickly than they currently anticipate if US inflation does not come under control, according to the minutes of their latest meeting. The account of the January gathering of the Federal Open Market Committee said officials were on board for the first interest rate increase since 2018 to be implemented “soon” in the face of soaring inflation. Economists interpreted that to be a confirmation of a “lift-off” in March. Most Fed officials acknowledged that a faster pace of rate rises was “likely warranted” compared to the last tightening cycle when the Fed increased its main policy rate by a quarter-point in December 2015 and then held off on another adjustment until the end of 2016. A majority of officials noted that if inflation does not abate sufficiently, there is scope to tighten monetary policy “at a faster pace than they currently anticipate”. That could mean either raising rates more quickly or shrinking the size of the Fed’s balance sheet, which swelled to almost $9tn during the pandemic as it hoovered up bonds to prop up the economy.

Visas offering foreign investors fast-track residency in the UK are expected to be scrapped by the government, amid pressure over UK links to Russia. The government is looking at curbing the influence of Russian money in the UK economy amid deterioration of ties with Putin’s regime over Ukraine. A government source confirmed reports of an announcement next week on Tier 1 investor visas, which offer residency to those spending at least £2m. The scheme was introduced in 2008 to encourage wealthy people from outside the EU to invest in the UK. It has been under review for some time, after concerns it is open to abuse. Several international investors including Russians have reportedly taken advantage of the visa scheme to resettle in the UK. It has been under review since 2018 after the UK claimed Russian hand behind the poisoning of former Russian agent Sergei Skripal in Salisbury. The UK government had introduced checks including issuing orders for proof to be shown of a UK bank account in order to avail the scheme. The UK’s attempt to close the “golden visa” scheme comes as PM Johnson informed that a new set of sanctions were being prepared if Putin’s forces attacked Ukraine.

GBP

Sterling is well bid against most major currencies overnight. British Foreign Secretary, Liz Truss, said Russian President Vladimir Putin could drag out the Ukraine crisis for months in an attempt to challenge Western unity. Meanwhile, UK shares inched down on Thursday after a report of attacks in Ukraine left investors unnerved, while weaker-than-expected profit from Standard Chartered weighed on banking stocks. Britain committed 25 million pounds ($34 million) to strengthen security in the Indo-Pacific as part of a pact with Australia, and leaders of both countries expressed “grave concerns” about China’s policies in its far western region of Xinjiang. Britain’s Reckitt Benckiser Group beat fourth-quarter sales forecasts on Thursday after fears of COVID-19 led to increased demand for its cleaning products. Travel disruption and power cuts are continuing across parts of the UK, as the country braces itself for a second storm. Storm Dudley left thousands of people in north-east England, Cumbria, North Yorkshire, and Lancashire without power. Meanwhile, one month after work-from-home guidance was lifted, some commuters say they are struggling to get to work amid a lack of trains and sudden cancellations.

EUR

Euro is weaker against the dollar and sterling this morning. Monitors of the Organization for Security and Cooperation in Europe recorded multiple shelling incidents along the line of contact between Russian-backed rebels and government forces in eastern Ukraine on Thursday. Meanwhile, NATO members are weighing to send fresh troops to the alliance’s eastern and southeastern member countries, as Secretary-General Jens Stoltenberg on Wednesday dismissed Moscow’s claims that some of its forces are returning to their barracks. Germany’s plans to introduce a general vaccination mandate this spring are faltering, as a growing number of politicians question if it will find a majority in parliament. The Bundestag was originally due to debate motions in favour and against mandatory vaccinations this week, after the chancellor, Olaf Scholz, indicated he considered such a step necessary to cope with a possible resurgence of the virus in the next few months. Switzerland will lift almost all its coronavirus pandemic restrictions from midnight, the government said on Wednesday, as fears waned that a spike in infections fuelled by the Omicron variant would overwhelm the health care system.

USD

The dollar is weaker than most major currencies in the early morning trade. US government debt has been hit with the most serious bout of volatility since the pandemic-fuelled ructions of early 2020, making it more difficult for investors to transact in the world’s most important bond market. Top US infectious disease expert Dr. Anthony Fauci said on Wednesday that it is time for the United States to start inching back towards normality, despite remaining risks from COVID-19. The White House said it could scrap federal gasoline taxes in a bid to bring immediate relief to drivers. The average price for a gallon of gasoline across the US is now $3.50, a rise of almost 50 per cent since Biden entered the Oval Office. Meanwhile, Senator Bill Cassidy said he is blocking President Joe Biden’s nominees for environmental regulatory positions in a bid to win permission for his state to regulate storage of the primary gas blamed for climate change. The White House has called the Kremlin’s claims that it is withdrawing forces from the Ukrainian border “false” and accused Russia of increasing its troop presence in the region by about 7,000 troops in recent days. Russian officials maintain they are withdrawing some of the troops as they pursue a diplomatic solution, but western officials say those comments are at odds with signs of advancing military preparation for an assault.

Markets

US equity futures fell Thursday, Treasuries jumped, and the dollar rallied in another bout of risk aversion sparked by the Ukraine standoff. Crude oil pared losses. S&P 500, Nasdaq 100 and European contracts slid as traders evaluated a flurry of speculation about the situation in eastern Europe. Asian shares were mixed. Havens such as the yen and gold pushed higher. The US 10-year Treasury yield retreated to about 2%. Russian-backed separatists claimed Ukrainian forces violated cease-fire rules overnight, according to a Russian state news agency. The Luhansk separatist claim doesn’t mention any casualties. Allegations of cease-fire violations from both sides are frequent. Earlier, the US rejected Russia’s claims of a troop pullback from Ukraine’s border. The Kremlin has repeatedly denied any plans to invade its neighbour. Oil, at one point down more than 3%, trimmed the retreat to some 1%. Crude had been hurt by the prospect of a resumption in official Iranian exports if diplomatic talks lead to a nuclear accord. But it has also been whipsawed by supply worries stemming from the Russian troop build-up. Investors expect at least 150 basis points of Fed tightening in 2022 to fight price pressures. The worry is whether the pivot away from pandemic-era stimulus will squeeze economic growth and inject more turbulence across assets.

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

9:00 a.m.: Riksbank’s Breman speaks
9:30 a.m.: Hungary one-week deposit rate
9:45 a.m.: ECB De Cos speaks
10:00 a.m.: ECB publishes economic bulletin
10:00 a.m.: Norges Bank 1Q expectations survey
10:00 a.m.: Italy Dec. trade balance
10:30 a.m.: Spain sells bonds
10:50 a.m.: France sells bonds
11:00 a.m.: Sweden sells inflation-linked bonds
11:50 a.m.: France sells inflation-linked bonds
12:00 p.m.: Ireland Jan. CPI
12:00 p.m.: Turkey one-week repo rate
3:00 p.m.: ECB’s Lane speaks
6:00 p.m.: Norges Bank governor’s annual address
G20 finance ministers meet in Jakarta

Corporate Events

Earnings include Walmart, Schneider Electric, Reckitt Benckiser, Southern Co, US Foods, Reliance Steel, Sealed Air, Lundin Mining, Sunrun

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.