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