Markets opened relatively quietly with U.S equities selling off within the early hours of the U.S session. Rising fears surrounding China’s COVID-19 cases set off the continued sell-off in equities with the cases sprouting fears of further lockdown measures affecting global supply chains. After confirmation of Elon Musk buying Twitter U.S equities brushed off fears and pushed all major indices into the green. However, this sudden reversal is seen as only temporary relief to the markets, as major macro indicators point toward an underperforming equity market as the Fed continue to tighten financial conditions and growth forecasts lower. Dollar surge, cable and euro lower As the dollar edged higher yesterday rates on the euro and pound continued to disappoint, stretching both pairs into negative territory. The euro is down to 2020 year lows with cable also at levels not seen since September ‘20. Despite Macron’s successful election win the euro failed to hold steady as the growth outlook continued to paint a worrying picture. With a quiet week of economic data ahead we turn towards the month of May to give us further direction on currency movement. Global growth worries Commodities closed the day lower as forecasts of global growth continued to pin down commodities such as copper and oil which are great indicators of global consumption levels. As fears surrounding China's lockdown and a global slowdown in economic output rise such commodities will be the first to indicate this in their prices.
Apr 26, 2022 · 2 min read
Peace talk progress, risk-on
Today we have President Lagarde of the ECB and FOMC member George speaking within the day. Private employment figures are set to come out as well as Q4 GDP for the U.S which is expected to reach 7.1%. With peace comes risk… The euro stole the headlines over the past day with reports coming in that there has been overall positive progress with peace talks between Russia and Ukraine. Reports say that Russia has vowed to reduce northern Ukraine attacks as well as reduce military personnel in Kyiv. Moments later we saw the euro rocket against the dollar and the pound pushing rates past 1.110 on the euro-dollar and below 1.1820 on the pound euro. Any form of progress announced in Ukraine will fuel the ongoing call for rates to hit 1.15 on GBP/EUR which seems ever more likely upon revision. The pound struggled to hold ground against the dollar as a strong number of job vacancies was recorded for the month of February, however, the pound managed to close shy of 1.31. It wasn’t just the euro that felt capital inflows, major equity markets across Europe, UK and U.S closed higher with investors betting on further positive talks adding a sense of clarity to the market. Oil continues to retreat as Shanghai steps up restriction rules ahead of the OPEC meeting later this week. What to look out for this week We have our eyes on the public employment figures being released this Friday, the reading could either fuel optimism that the Fed can lower the 7.9% inflation whilst keeping the employment market tight or allow fears to seep in.
Mar 30, 2022 · 2 min read
Bracing for stagflation
After a long easter and bank holiday weekend, analysts turn their heads back to the UK as last week’s inflation print of 7% had the pound trading at new year lows of 1.2970. With the government doing very little to help UK households with the rising living costs and real earnings falling, the climate of the economy points toward one possible scenario, prolonged stagflation. Further suffering for Eurozone The war in Ukraine is set to destroy half of Ukraine’s harvest this year which is crucial not only to Europe but global supplies. This is set to have an unpleasant impact on the Euro zone’s inflation figures this quarter. At the time of writing the euro is trading below the 1.079 mark with little hope of a rebound. As the ECB plans to terminate its asset purchase program this summer, Christine Lagarde is under pressure to keep the Eurozone afloat as it too faces stagflation risks which she wisely avoided mentioning at the most recent press conference. Main euro rates remain at 0% with the deposit facility rate negative 50bps. The question is, for how long? This week Europe’s inflation figures will surface and Fed Chair Powell speaking later on Thursday. Over in the UK retail sales are set to come in negative MoM for March so analysts will be paying attention to all releases. The US is poised to deliver its first round of 50bps hikes as traders price in a 96% chance of this happening. May 4th is the date, we expect Fed Chair Powell to speak on the tightening of monetary policy once again.
Apr 19, 2022 · 2 min read
Markets flee risk assets
Powell sights his eyes on a 50bps rate hike Yesterday Jerome Powell confirmed exactly what traders have been betting on for weeks, although slightly dovish compared to the 75bps hike expectation; he confirmed that a “50bps hike will be on the table for the May meeting”. This sent the DXY above the 100.00 mark once again and sent its counterpart G7 currencies lower with the eurodollar well below the 1.08500 level and cable back below 1.30500. The markets are pricing in two 50bps hikes in both May and June with possibilities of a 75bps July hike if need be. Powell’s comments sent U.S equities lower after seeing gains earlier in the day. ECB Inflation print release Inflation in the Eurozone came in lower than expected at 7.4% vs 7.5% YoY for March with core lower as well at 2.9% vs 3.0%. President Lagarde spoke yesterday mentioning that the June ECB meeting will be “key” for the end of their asset purchase program and potentially the beginning of their rate hikes. This however failed to have any effect on euro rates across the board. Negative Retail sales in the UK A negative print for retail sales in the UK pushed the pound lower as the squeeze in income felt by citizens caused a hesitation to open their wallets. As energy prices, food prices and other essential living costs increase for the UK citizen; a cut back in retail is expected as consumers now will only look to purchase consumer staple products.
Apr 22, 2022 · 2 min read
To start the morning off Q4 GDP YoY for the UK came in at 6.6% vs expectations of 6.5% boosting the pound against both the euro and dollar. Newfound optimism on the Russia-Ukraine ceasefire and peace talks quickly came to a halt after Russia indicated no material progress had been made. U.S equities shaved off gains made yesterday closing lower along with the European market whilst the FTSE was flat. Europe’s strongest economy Germany had a surge in inflation YoY printing 7.3% over March. Traders now bet the ECB will hike its deposit rate from negative 50bps to zero two months earlier than expected with Christine Lagarde stating that “The longer the war lasts, the greater the costs are likely to be”. As a result, we saw the euro gain against the dollar pushing through the 1.1140 level and taking the pound euro to new year lows around 1.1770. Oil and natural gas were back in the green following further attacks in Ukraine and on worries that citizens in Western Europe may be forced to ration fuel. For the dollar, ADP non-farm payroll, which represents private-sector employment, came in above expectations at 455k vs 450k expectations. We saw a surge in employment in the services sector as covid measures ease. To round up Q4 for the U.S GDP data came in at 6.9% vs forecasts of 7.1% expansion, the dollar slipped lower propping cable up to 1.3140. We have initial jobless claims release in the afternoon followed by FOMC member Williams speaking. With non-farm payroll tomorrow that is the piece of data to re-affirm the message of how the U.S labour market is tight and can withstand monetary tightening or if there are any gaps in their plans.
Mar 31, 2022 · 2 min read