March 17, 2022

“For the first time since 2018, the US Federal Reserve lifted its benchmark interest rate by a quarter of a percentage point from between zero and 0.25 per cent to between 0.25 per cent and 0.5 per cent, amid the backdrop of a severely tight labour market and high inflation – a move which marks a major shift for the nation’s central bank.”

Tim Hallinan – Trading Director

Main Headlines

The Federal Reserve lifted its benchmark interest rate by a quarter of a percentage point, the first increase since 2018 and the start of what US central bank officials signalled would be a series of hikes this year with further rises expected at all of the six remaining policy meetings. At the end of its two-day policy meeting on Wednesday, the Federal Open Market Committee increased the federal funds rate by a quarter of a percentage point, bringing the target range to 0.25 to 0.50 per cent. It is the latest milestone for the US economy in its recovery from the pandemic and the most forceful step to date to combat the highest inflation in four decades. Powell kept the door open to raising interest rates by increments larger than a quarter point this year, and said the committee is “acutely aware of the need to return the economy to price stability and determined to use our tools to do exactly that.”

Boris Johnson has failed to secure a commitment from Saudi Arabia and the United Arab Emirates to raise oil production after a day-long visit to the two Gulf countries. The UK prime minister was heavily criticised by MPs ahead of his trip to Riyadh after the government executed 81 people on terrorism and related charges at the weekend. But Johnson defended the decision, arguing that as the world’s largest oil exporter, the kingdom was too important to ignore. The prime minister said Saudi Arabia would be announcing a £1bn investment in Teesside to produce green aviation fuel. Both Saudi Arabia and the UAE have previously rebuffed US appeals to increase oil production to offset the loss of Russian oil. Johnson, who is seen as having a better relationship with Prince Mohammed, also appears to have walked away empty-handed.

GBP

Sterling is well bid against most major currencies overnight. The UK has announced plans to clamp down on the use of the courts by Russian oligarchs and powerful elites to “weaponise” litigation as a way of silencing critics and shielding themselves from scrutiny. Britons are taking fewer precautions towards Covid-19 than at any point during the pandemic, as unease grows among government science advisers about a rising wave of infections and hospital admissions prompted by the Omicron BA.2 offshoot. British military intelligence said that Russia’s invasion of Ukraine has largely stalled on all fronts, with Russian forces suffering heavy losses and making minimal progress on land, sea, or air in recent days. Britain agreed to its biggest-ever civil infrastructure export finance deal to underwrite a high-speed rail line between the Turkish capital Ankara and the port of Izmir in the west of the country.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. International outrage over Russia’s invasion of Ukraine grew as US and Ukrainian officials said civilians waiting in line for bread and sheltering in a theatre had been killed by Russian forces. European Union regulators have reportedly told some banks to scrutinise transactions by all Russian and Belarusian clients, including EU residents, to ensure that they are not used to circumvent Western sanctions against Moscow. Environment Minister Steffi Lemke said that the German government will ditch plans to lobby for key exemptions in EU car and van CO2 target legislation and formally back a mandate that only zero-emission vehicles can be sold from 2035. The Italian government is planning to ease the remaining COVID-19 restrictions gradually starting from April 1.

USD

The dollar is weaker than most major currencies in the early morning trade. With the invasion entering its fourth week and no let-up in the fierce shelling of Ukraine’s frontline cities, US President Joe Biden called Putin a war criminal for the first time, comments the Kremlin said were “unforgivable.” Moreover, Biden approved the delivery of new US weapons systems to Kyiv, including sophisticated armed drones, after Volodymyr Zelensky, Ukraine’s leader, made an impassioned plea to Congress for more military support to defend his country against Russia’s invasion. A federal appeals court on Wednesday allowed the Biden administration to continue, at least temporarily, using Obama-era values for calculating climate change costs in government decisions.

Markets

Stocks in Europe rose Thursday and US futures were steady as traders digested the Federal Reserve’s view that a robust US economy can weather the campaign against high inflation now underway. The Stoxx Europe 600 index was up 0.5% at the open, with basic resources leading the advance and the technology sector outperforming after a surge in Asian tech shares earlier. Futures on the S&P 500 and Nasdaq 100 were little changed after the S&P 500’s best two-day advance since 2020. An Asia-Pacific equity index rose about 3%, boosted by China’s effort to stabilize its markets. The dollar slipped and the yen hovered near a six-year low. Oil snapped a three-day drop but remains down more than 10% for the week. The Fed said it would begin allowing its $8.9 trillion balance sheet to shrink at a “coming meeting.” The US central bank is among a number from Brazil to the UK that are raising borrowing costs.

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

8:00 a.m.: EU Feb. car registrations
9:00 a.m.: Spain 4Q labor costs
9:00 a.m.: Hungary one-week deposit rate
10:00 a.m.: Spain Jan. trade
10:30 a.m.: Spain to sell bonds
10:30 a.m.: ECB’s Lagarde speaks
10:50 a.m.: France to sell bonds
11:00 a.m.: Euro-area Feb. CPI
11:15 a.m.: ECB’s Lane speaks
12:00 p.m.: Turkey one-week repo rate
1:00 p.m.: BOE rate decision
1:00 p.m.: ECB’s Knot speaks
1:30 p.m.: U.S. Feb. housing starts, weekly jobless claims
1:45 p.m.: ECB’s Schnabel speaks
2:15 p.m.: U.S. Feb. industrial production
3:30 p.m.: ECB’s Visco speaks
The ECB and Its Watchers XXII conference in Frankfurt

Corporate Events

Earnings include Accenture, Enel, FedEx, Veolia

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