March 22, 2022

“USD climbed against all its Group-of-10 peers as Federal Reserve Chair Jerome Powell voiced a more hawkish tone on monetary policy – the US central bank is prepared to raise interest rates by bigger steps than the quarter-point hike announced last week which jumped from between zero and 0.25 percent to between 0.25 percent and 0.5 percent.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Jay Powell has said the Federal Reserve needs to move “expeditiously” towards tighter monetary policy and is prepared to act even more aggressively if necessary to tackle excessive inflation. In remarks delivered at a conference hosted by the National Association for Business Economics yesterday, the Fed chair laid out the case for a series of interest rate increases this year and substantive steps to shrink the central bank’s $9tn balance sheet. Powell expressed confidence that the Fed could continue to tighten policy without sparking a recession, which some fear is inevitable. The “neutral” rate is one that neither aids nor hampers growth and most policymakers believe that figure to be around 2.4 per cent. US stocks sold off after Powell affirmed the Fed’s commitment to using its tools to quell inflation, including possibly raising rates by half a percentage point, rather than the standard quarter-point increase — a move the central bank has not made since 2000.

UK Prime Minister, Boris Johnson, has told Rishi Sunak that his Spring Statement on Wednesday must prove that the government is on the side of people struggling with the crisis in the cost of living. The prime minister’s edict will reinforce expectations that Sunak will cut taxes on fuel, with speculation of either a temporary reduction in VAT, or 5p coming off fuel duty, to offset high prices at the pumps. The chancellor is also under pressure to soften his planned £12bn national insurance rise, intended to raise money to clear an NHS treatment backlog and to fund social care, or to cut other taxes. Treasury insiders say the Spring Statement will be a “policy-light” event. Sunak has been adamant that it is not a “mini-budget” and that major fiscal decisions will be taken in the autumn. It’s confirmed that even if there are relatively few new policies in the statement, Sunak will take decisive action to alleviate pressures on households caused by rising fuel bills and higher inflation.

GBP

Sterling is stronger against the euro and weaker against the dollar this morning. P&O Ferries faced a barrage of political criticism yesterday as it was unable to confirm when it would restart sailings across the English Channel and the transport minister raised the prospect of a consumer and industry boycott. Politicians from all parties lined up to rebuke P&O during a parliamentary debate, after the company suspended sailings to sack 800 UK-based crew with no notice on Thursday. UK ministers want to replicate the country’s successful Covid-19 vaccine task force to deliver new nuclear power stations at “warp speed”, after Boris Johnson said he wanted atomic power to provide at least a quarter of UK electricity generation by 2050. Increases in pay settlements offered by British employers have remained at their highest since 2008 but continue to lag behind inflation.

EUR

The euro is weaker than most major currencies in the early morning trade. Russia has warned of a breach of its relations with Washington and summoned the US ambassador in Moscow for an official protest over Joe Biden’s labelling of Vladimir Putin as a war criminal, as the US president held talks with European allies on efforts to stop the Russian invasion of Ukraine. EU leaders are deadlocked over whether to hit the Russian energy sector with crippling sanctions as fury mounts over the Kremlin’s “war crimes” in Ukraine. The price of oil surged to nearly $115 a barrel as of yesterday. It is likely that Europe will consider joining a US-led embargo of Russian oil this week, as the West looks for new ways to punish President Vladimir Putin for waging his devastating war in Ukraine. Ford’s vehicle factories in Germany and Spain are facing production disruption this week due to shortages of parts from Ukraine and other locations.

USD

The dollar is well bid against most major currencies overnight. Joe Biden has warned a Russian cyber-attack on the US is coming and told business executives that it is their “patriotic obligation” to strengthen their digital defences. Biden has said only India among the Quad group of countries was “somewhat shaky” in acting against Russia over its invasion of Ukraine, as India tries to balance its ties with Russia and the West. Elevating money on Wall Avenue is turning into more and more troublesome as market gyrations shut the door on large preliminary public choices and the Federal Reserve’s flip to an extra restrictive financial coverage forces firms to pay as much as borrow, by way of debt markets. The CDC (Centers for Disease Control and Prevention) is predicting that the BA.2 variant of Covid-19, also called the stealth variant, will become dominant in the US soon.

Markets

A selloff in bonds deepened today and US equity futures wavered after fed Chair Jerome Powell struck a more hawkish tone on the central bank’s campaign against high inflation. Treasuries extended losses and Australian and New Zealand debt slid after short-dated US yields Monday posted one of the biggest daily climbs of the past decade. The gap between five-year and 30-year US yields is around the smallest since 2007, a sign of worry that Fed tightening will sap the economy. US and European futures dipped, while Asian stocks rose partly on a climb in export-reliant Japan amid a weaker yen. Hong Kong pushed higher, bolstered by Alibaba Group Holding Ltd.’s ramped up $25 billion share buyback program. Derivative traders Monday priced in about 7.5 quarter-point rate hikes at the remaining six Fed meetings this year, effectively making provision for more than one half-point rise.

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

7:25 a.m.: SNB publishes annual report
8:00 a.m.: U.K. Feb. public finances
8:20 a.m.: ECB’s Guindos speaks
10:00 a.m.: ECB Jan. current account
10:30 a.m.: Italy Jan. current account
10:30 a.m.: Greece Jan. current account
10:35 a.m.: ECB’s Villeroy speaks
11:00 a.m.: Euro-area Jan. construction output
1:10 p.m.: ECB’s Villeroy speaks
1:25 p.m.: Riksbank’s Ingves speaks
2:00 p.m.: ECB’s Panetta speaks
2:00 p.m.: Hungary central bank rate decision
2:15 p.m.: ECB’s Lagarde speaks
3:35 p.m.: Riksbank’s Skingsley speaks
4:15 p.m.: BOE’s Cunliffe speaks
4:15 p.m.: SNB’s Jordan speaks
6:00 p.m.: ECB’s Lane speaks
Nigeria, Morocco Rate Decisions
Fourth annual joint conference of the Bundesbank, ECB and Chicago Fed

Corporate Events

Earnings include Partners Group Holding, Poste Italiane, Nemetschek, Capital Concept, Kingfisher, Surgutneftegas, Osram

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