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  • richard evans

Sooner and faster

Good morning

The Fed kept policy unchanged yesterday but Powells comment that tightening could come sooner and faster than may have been seen in previous cycles was enough to send equities lower and USD higher, while US 10 year yields reached 1.9%, the highest level for almost two years and certainly the highest since the pandemic began. Powell noted inflation risks were to the upside and suggested the surge in Omicron cases at the start of the year has had little impact on forecasts. A rate rise in March is now pretty much a done deal, still have the question of how big that move may be, 25 or 50bps. Given Powells comments, I’m erring on the side of 50bps initially. None of this was a massive surprise but the market has reacted, with EURUSD now just below 1.1200 and GBPUSD at 1.3415.

Gold, which had been around the $1850/oz area, is now $1810 and the commodity currencies such as AUD and CAD are also lower against USD, at 0.7070 and 1.2705 respectively. CAD had already moved lower after the BoC kept rates on hold, with Macklem pointing the finger at uncertainty over Omicron as a key factor in the decision. USDCAD was 1.2560 pre-BoC, traded up to mid 1.26s after the announcement, and then saw further gains to reach around 1.2725 even though BoC are still set to raise rates, just perhaps a little later than expected.

The Ukraine crisis continues to dominate headlines, with US rejecting Russian demands that Ukraine must never be allowed to join NATO. It seems highly unlikely Russia will stand down, harsh sanctions are lurking just around the corner if they were to invade, ECB has warned lenders with exposure to Russia and asked them to detail how they would handle the situation if the worst were to happen. Russia have been told that the NordStream 2 pipeline will not move forward if Russia does invade.

Not a long calendar but we do have some important numbers from the US in the form of GDP, durable goods, home sales and jobless claims. None of these are expected to cast any doubt on Fed’s intentions so I’m not sure we’ll see huge market impact unless they come in a lot stronger than expected which can only serve to reinforce the idea of earlier and faster rat rises.

Covid restrictions ease today with face coverings and Covid passes no longer legally required and I believe rules on visitors to care homes are also set to be relaxed. I was reading this morning about NHS workers who may well lose their jobs if they are unvaccinated. I do have some sympathy with the ‘Its my body and I’ll do with it as I please’ idea, but I’d hope people with this view do appreciate that their decision may impact the rest of society and that they may be treated differently as a result.

I must admit I am surprised though that a front line NHS worker who has likely experienced at first hand the devastating effects of Covid would be so against a vaccination. Mind you with something like 1.4million people employed I reckon we are talking a tiny percentage of staff in this position but they will of course be the ones who make the headlines.

- 13.30 US GDP, durable goods, initial jobless claims

- 15.00 US pending home sales

- 23.30 Japan Tokyo CPI

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