Morning Report

March 15, 2022

“Russia faces an uphill struggle to avoid a $150 billion default on foreign-currency debt owned by both the government and Russian companies – stoking concerns of the most impactful emerging-market default in two decades.”

Tim Hallinan – Trading Director

Main Headlines

The Federal Reserve on Wednesday will launch one of the most difficult tasks a central bank can attempt: Raise borrowing costs enough to slow growth and tame high inflation, but not so much as to topple the economy into recession. With a war raging in Europe and price increases at a four-decade high, Fed Chair Jerome Powell will seek to engineer a “soft landing”: a gradual slowdown in economic activity that helps curb surging prices, while keeping the job market and economy expanding. Yet many economists worry that with the price of gas and commodities spiking, the additional burden of higher interest rates could choke off growth entirely. The Fed had, by its own admission, underestimated the breadth and persistence of high inflation after the pandemic struck, and now it faces a dizzying array of uncertainties that will make delivering the “soft landing” particularly challenging.

UK unemployment dropped below its pre-pandemic level for the first time as companies generated more jobs and granted higher wages than expected. The jobless rate fell to 3.9% in the three months through January, the lowest since the start of 2020, the Office for National Statistics said in a statement today. Employers added 275,000 jobs in February, more than double the number predicted by economists. The figures also showed the redundancy rate fell to a record low and job vacancies reached a new high, adding to evidence of a strong recovery from Covid-19 in the weeks before the war in Ukraine. The Bank of England is expected to raise interest rates again this week. The jobs data also showed average wages excluding bonuses rose 3.8% from a year earlier in the three months through January. However, when adjusted for inflation, wages fell 1%, the biggest decline since 2014.


Sterling is stronger against the dollar and weaker against the euro this morning. The Bank of England is almost certain to increase borrowing costs on Thursday, nearly all economists polled by Reuters said, marking the third consecutive meeting where it has raised Bank Rate as it continues its exit from pandemic-related support. Like most central banks the BoE slashed interest rates to a record low as the coronavirus swept across the world but is now facing soaring inflation, which reached a near 30-year high of 5.5% in January and is likely to rise further. Inflation was expected to peak at 7.7% next quarter, almost four times the Bank’s 2% goal and a sharp upgrade from the 6.6% median given last month. It was expected to slow in following quarters but won’t reach target until late 2023. “The intensifying cost of living crisis should ultimately weigh on activity, particularly private consumption over the coming quarters,” said Sanjay Raja at Deutsche Bank.


The euro is well bid against most major currencies overnight. Russia’s economy is fraying, its currency has collapsed, and its debt is junk. Next up is a potential default that could cost investors billions and shut the country out of most funding markets. Warning lights are flashing as the government kickstarts the process of paying $117 million in interest on dollar bonds Wednesday. The government says that all debt will be serviced, though it will happen in rubles as long as sanctions, imposed because of the war, don’t allow dollar settlements. Failure to pay, or paying in local currency instead of dollars, would start the clock ticking on a potential wave of defaults on about $150 billion in foreign-currency debt owed by both the government and Russian companies including Gazprom, Lukoil and Sberbank.


The dollar is weaker than most major currencies in the early morning trade. It appears that China wants to avoid being impacted by US sanctions over Russia’s war. “China is not a party to the crisis, nor does it want the sanctions to affect China,” Minister Wang Yi said, in one of Beijing’s most explicit statements yet on American penalties that are contributing to a historic market selloff. There has been a surge in interest in buying electric vehicles (EVs) in the wake of the war in Ukraine, analysts say, with drivers in the US unnerved by gasoline prices that have surpassed $4.30 a gallon as a result of the conflict and the supply chain issues from the pandemic. Faced with rising gasoline prices, many Americans are now looking to switch to an electric car. But the shift away from fossil fuel vehicles has been criticized by Senator Joe Manchin, who has said he is “very reluctant” to see the proliferation of battery-powered cars.


Equities in Europe fell, and US index futures wavered as a relentless selloff in Chinese stocks buffeted global markets, adding to concerns about the war in Ukraine and imminent Federal Reserve tightening. Crude oil extended a retreat. The Stoxx Europe 600 index fell more than 1%, and S&P 500 and Nasdaq 100 futures fluctuated, signalling another volatile day may be in store after the Nasdaq closed in a bear market on Monday. A gauge of Asian shares headed for a 19-month low. Robust Chinese economic data failed to lift investor gloom, given the nation faces a growth hit from lockdowns to fight a Covid outbreak. Treasuries pared a drop, but the 10-year yield remains near the highest level since 2019. The dollar slipped, while the euro pushed higher.

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

8:00 a.m.: Norway Feb. trade
8:00 a.m.: UK Feb. jobless claims, Jan. ILO unemployment
8:30 a.m.: Switzerland Feb. producer and import prices
8:45 a.m.: France Feb. CPI
11:00 a.m.: Germany March ZEW survey
11:00 a.m.: Euro-area Jan. industrial production
11:00 a.m.: UK to sell inflation-linked bonds
11:30 a.m.: Germany to sell bonds
1:30 p.m.: US Feb. PPI
3:00 p.m.: Ukraine to sell dollar bonds, bills
Chancellor Rishi Sunak takes questions from MPs
Germany Jan. current account
OPEC’s monthly oil market report

Corporate Events

Earnings include Volkswagen, Ferguson


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