March 23, 2022

“The Federal Reserve announced a 0.25% increase in interest rates yesterday, but also hinted at the possibility of pausing further hikes in light of the recent failures of two US banks. Today, all eyes are on the Bank of England’s monetary policy decision, which carries event risk for the value of the pound. Following yesterday’s report of elevated inflation, markets have priced in a 0.25% rate hike, adding to the anticipation surrounding the announcement.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Despite recent turbulence in the banking sector, the Federal Reserve proceeded with a quarter-point rate increase on Wednesday, but hinted that its monetary tightening campaign may soon come to an end. The Federal Open Market Committee voted to raise the federal funds rate to a new target range of 4.75% to 5%, the highest level since 2007. The FOMC stated that the US banking system was “sound and resilient,” but uncertainty remained about how the fallout from the failure of two lenders would impact the economy.

The unexpected surge in UK inflation in February, along with turmoil in the global banking sector, presents an even more challenging decision for Bank of England rate setters. Inflation at 10.4% confirms concerns that domestic pressures in the services sector are increasingly driving price rises, which are more persistent than external shocks caused by high energy prices. Market expectations are that the BoE will raise interest rates again, but concerns over the health of the global banking sector have intensified.

GBP

Sterling is well bid against most major currencies this morning. UK Prime Minister Rishi Sunak paid over £400,000 in tax in the last financial year, with investments heavily skewed towards lightly taxed capital gains. The Rail, Maritime and Transport (RMT) union suspended nationwide rail strikes planned for March 30 and April 1 after a proposal by train companies that could lead to a resolution in the ongoing dispute over pay and conditions. HSBC has appointed Patrick George as head of markets and securities services as part of a broader reshuffle of the leadership of its investment bank aimed at streamlining decision-making.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. The Swiss financial regulator, Finma, has defended its decision to eliminate a large portion of risky subordinated bonds in the Credit Suisse rescue deal, which has angered some bondholders. Meanwhile, France experienced nationwide strikes against an unpopular bill to raise the pension age, causing disruptions in train services, school closures, and piles of garbage on the streets. Diplomats from EU countries are attempting to prevent a debate among their leaders on the bloc’s planned phase-out of combustion engines during a two-day summit in Brussels.

USD

The dollar is weaker than most major currencies in the early morning trade. As part of an effort to curb an increase in illegal border crossings, US authorities have been transporting migrants apprehended crossing the US-Canada border to Texas. Yesterday, a recent round of harsh winter weather swept into the Desert Southwest states adjacent to California, resulting in at least five storm-related fatalities in the San Francisco region, all of which were caused by fallen trees. TikTok creators and three US Democratic Party lawmakers have expressed their opposition to any potential ban on the Chinese-owned short video sharing app, which is used by over 150 million Americans.

Markets

European stocks fell, led by banks, as investors assessed key rates decisions in the region. US equity futures climbed, signalling a recovery following a tumultuous day of losses on Wall Street Wednesday. The Stoxx Europe 600 Index slid 0.6% before a policy announcement from the Bank of England. The Swiss and Norwegian central banks both raised rates Thursday, as forecast, and flagged more hikes to come. Banking stocks were the biggest laggards, following weakness in their US peers. Contracts on the S&P 500 and the Nasdaq 100 advanced at least 0.6%.

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

8:00 a.m.: Denmark March Consumer Confidence Indicator
9:00 a.m.: South Africa 4Q Consumer Confidence
9:30 a.m.: SNB Policy Rate
10:00 a.m.: Norway Deposit Rates
11:00 a.m.: ECB’s Holzmann Speaks
12:00 p.m.: Turkey One-Week Repo Rate
12:45 p.m.: ECB’s Muller Speaks
1:00 p.m.: BOE Policy Rate
3:00 p.m.: Riksbank’s Thedeen Speaks
4:00 p.m.: Euro-area March Consumer Confidence
4:00 p.m.: BOE’s Mann Speaks
4:30 p.m.: ECB’s Centeno Attends Awards Ceremony
5:00 p.m.: ECB’s Lane Speaks
EU leaders meet in Brussels for two-day summit

Corporate Events

Earnings include General Mills, FactSet

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The dollar is weaker than most major currencies in the early morning trade.