So much uncertainty going into FOMC this evening

Good morning

US and Asian markets posted gains as officials seem to manage to bring a sense of calm over the banking crisis. Reports suggest that funds withdrawals from regional banks have slowed as Treasury Secretary Yellen inferred that deposits at small US banks could be guaranteed by the government.

UK inflation numbers came out firmer than expected this morning which will likely leave BoE no choice but to raise rates again tomorrow, a 25bps rise from 4% to 4.25% is widely expected. GBPUSD moved higher on the release and as I type is currently testing Mondays highs in the 1.2280 area.

Main focus today clearly on Fed rate decision. Current thinking seems to be a 25bps rise with a dovish tilt to the accompanying statement. Plenty of players looking for a weaker USD should this be the path the Fed choose to take and I have seen upside EURUSD and downside USDJPY trade ideas as a result. Positive comments from ECBs Nagel over the EU economic outlook offers support for EURUSD, the pair now around 1.0780, some looking for a move to the 1.09+ area.

However a rate rise is not a foregone conclusion. It is possible they choose to keep rates unchanged but with a message that this is simply a pause while the banking crisis unfolds, rather than a dramatic turn, perhaps pointing to a larger rise next time around. However this could backfire and lead to greater concern about the fragility of the banking system rather provide comfort.

We also have the ‘dot plot’ from FOMC, their idea of rate expectations. It is highly unlikely these will show higher than previously, the key question is whether Fed officials keep them as they were or lower their forecasts. If they keep them as they are, the market still thinks they are on the high side but if they lower them I could see a little more USD weakness.

There are so many variations on the rate move and Powells direction in the statement, whether he chooses to calm markets with some dovish talk or keep his ‘Fed must do more’ rhetoric. I don’t remember going into a Fed rate meeting with so much uncertainty.

Looking at trade ideas, we must surely look for something in case of USD weakness. Could be upside GBPUSD or EURUSD (overnight 1.2350 costs 35usd pips, overnight 1.0850 costs 23 usd pips) or downside USDJPY (overnight 131.50 put costs 40 yen pips). Just a selection of possibilities for you to consider.

Meanwhile Putin and Xi seem to have got on well, talking of new trade agreements and oil/gas supplies to Asia. Sanctions may be hitting Russia but they do seem to be weathering that storm and things would get easier still with Chinas help. Whether China will provide weapons for Russia’s war on Ukraine remains to be seen.

For now, we will listen to ECB officials say their bit through the day, but FOMC obviously the key event.

- 09.30 ECBs Lane speaks

- 13.45 ECBs Panetta speaks

- 17.00 ECBs Nagel speaks

- 18.00 FOMC rate announcement

- 18.30 FOMC press conference

A bit of calm before FOMC tomorrow, please...

Good morning

US and European stocks made a small recovery yesterday and although Asian markets were generally lower overnight current futures prices point to a positive start this morning. The US dollar weakened yesterday as markets still get used to the idea of a rate rise smaller than the 50bps previously expected while I see ECBs Holzmann has already lowered his expectations of ECB rate rises in the coming months due to the banking crisis. Holzmann had been particularly hawkish mind you, looking for three more 50bps rises from ECB, now he seems less certain.

Regardless EURUUSD is trading up to 1.0735 as I type with an eye on last weeks high of 1.0760. GBPUSD traded to 1.2285 after London close, highest level since early February. Currently at 1.2250, it has done well to hold most of those gains although has dropped a little against EUR with GBPEUR now 1.1405.

FOMC rate decision tomorrow remains the key. It will be interesting to see whether Fed do continue to raise rates or whether they give the banking system a little breathing space. No change or 25bps are the main choices I think, the latter being the more popular decision so far. We have seen USD weaken as expectations of a 50bps rise reduced, as we know though USD can lead the way and should other central banks begin to follow suit USD could once again become more favourable. I have seen some long USD dollar trade ideas from some thinking the USD can bounce back.

Lagarde speaks later today. She did speak yesterday as well, didn’t say much about policy but did assure markets that EU exposure to Credit Suisse was limited, while a couple of other ECB officials did say their aim was still to bring inflation down to 2%.

Xi meets Putin again today. US have urged China to press Putin to stop the Ukraine invasion but is more likely to ask for a ceasefire which is very different to a Russian withdrawal. Russia is now China’s largest oil supplier according to Bloomberg. I doubt their relationship will ever be very close but the old ‘an enemy of my enemy is my friend’ probably sums things up pretty well. They will both be sitting back watching the banking crisis with smug grins on their faces.

We can now put winter behind us, we are in spring whether you think this should be 20th or 21st March. I look forward to the longer days and warmer weather although a peek at the forecast suggests we are in for a wet end to March. Warm enough for grass to grow, with rain thrown in for good measure! I hate to think how long the grass could be in early April if its too wet to cut it in the meantime.

UK inflation numbers out early tomorrow morning, otherwise we really still wait for FOMC tomorrow evening, hoping of no further escalation of the banking crisis in the meantime.

- 10.00 German ZEW

- 12.30 ECBs Lagarde speaks

- 12.30 CAD CPI

- 07.00 UK CPI, RPI, PPI

Central bank commitments don't seem to help risk sentiment

Good morning

Global equities had another rough day on Friday as concerns over the banking crisis continued and futures prices this morning suggest further downside for equities today. The news that UBS has stepped in to buy Credit Suisse has done little to really help markets, no great surprise given the fact UBS have paid just $3.15billion against a valuation last year of some $570bn shows the damage done to CS in recent months but also the potential scale of toxic assets held by the beleaguered firm. Have UBS snapped up a bargain or a poisoned chalice? At that price I’d think it’ll be OK although with UBS shares over 10% lower this morning, I’m not sure everyone agrees.

The Fed, along with five other major central banks have also announced action to help ensure appropriate liquidity is US dollar swaps, showing really their concern at the current state of the financial markets. In fact although this action should help sentiment, there is now a question of whether they know something that we don’t, such as more bad news to upset the markets.

This concern did not stop ECB raising rates 50bps last week but expectations for the Fed on Wednesday have dropped from 50bps rise just a couple of weeks ago to a smaller rise of 25bps, although no change, perhaps even a cut, is not ruled out. BoE are expected to raise rates 25bps to 4.25% on Thursday. Plenty of volatility ahead.

GBP seems to be coming out ahead of other majors, with GBPUSD trading at 1.2210 as I type, EURUSD at 1.0660 which puts GBPEUR 1.1450. GBP certainly seems to have put last years turmoil behind it and for the time being at least looks pretty healthy. Gold has traded above $2000 for the first time since almost a year, while Bitcoin has also enjoyed this bout of USD weakness, trading up to $28,500, actually something of a long-term pivot area. I’m never going to try to forecast Bitcoin, as many of you know I think its real value should be minimal, but further gains look quite likely, something ironic that there is talk of Bitcoin as a safe haven doing the rounds.

Meanwhile credit agencies are downgrading banks, Moodys and S&P have lowered First Republic Bank rating, ‘locking the barn door after the horse has bolted’ springs to mind.

Putin made a surprise visit to Mariupol over the weekend where he could see first-hand the devastation inflicted on the Ukrainian city. Putin will meet China’s Xi today in Moscow with Ukraine no doubt high on the agenda, Russia may well be looking for China to provide armaments, but bear in mind China will do nothing unless it is in its own interests. Whether Xi is on a peace-finding mission or a show of support for his ‘ally’ remains to be seen, but as you know his idea of peace in Ukraine would likely involve Ukraine giving up vast parts of the country to Russia. That’s not going to work.

Congratulations for Ireland for winning the Six Nations, and the grand slam along with it. England looked like they may make a game of it until Englands Steward was handed a red card for a collision that looked nasty but was debatable as to whether it was dangerous play given he did seem to be pulling away. Looked like a harsh decision to many and one that really put Englands chances of a surprise victory well out of reach.

Not much in the way of data today, looking forward to hearing from Lagarde later, but let’s face it, the main event this week should be Wednesdays FOMC rate announcement, although even this is overshadowed in part by the ongoing banking crisis.

- 14.00/16.00 ECBs Lagarde speaks

- 20.00 NZ Westpac consumer surbey

- 21.45 NZ trade balance

- 00.30 RBA minutes