Markets
There was still There is no reason investors should consider rowing against the ruling-risk-off yesterday.There was no evidence of a Russian invasion of Ukraine. Persistent uncertainty about the duration and outcome of the conflict A wide range of commodity prices saw a further increase.With sharp price rises in wheat. The US contract ($12.09/bushel), reached its highest level since 2008. Brent briefly touched $120 per barrel early in the session, but slowly fell off the intraday peak levels due to rumours about a possible nuclear deal with Iran. Logically, eco data were again of little importance.US jobless claims dropped more than expected, to 215k. But the services ISM made a huge miss, unexpectedly dropping from 59.9 and 56.5, with activity indicators showing a broad loss of momentum. Prices paid remain near recent peak levels. As said, the report was no important factor, but didn’t help investor confidence either. In the second section of his hearing before Congress Powell, Fed Chair, confirmed that the Fed would begin hiking rates this month. Despite the higher inflation, a cautious start seems to be preferable in the current uncertain climate. The US yields fluctuated between +1.8 bps (2 y) and -3.91 bps (30 y). German yields dropped by about 1.5 bps at their front end. On FX, the dollar remains in the driver’s seat with DXY closing near 97.78.The Yen gains against USD were almost non-existent (USD/JPY close to 115.46).The euro continues to fight an uphill battleSimilar downward pressures are being felt for EUR/USD (close to 1.1066), EUR/CHF (1.150), and EUR/GBP (0.82290). CE currencies (CZK, forint, zloty) all closed substantially lower despite authorities’ efforts to curb the trend (Polish PLN buying, MNB rate hike).
Overnight The Russian shelling set fire to a nuclear power plant, further deteriorating sentimentThe east of Ukraine. The damage is said to be ‘under control’. It does not show the full range of possible risks that could be resulting from the conflict. Markets are back in a risk-off mode. Treasury yields are dropping by 4-5 basis points. Asian equities have lost as much as 2.0%. The dollar continues to gain. The 1.10 barrier, which is within reach of the euro, extends the euro’s journey south. (currently 1.1025 area). Market focus is usually on the first Friday of each month.The US payrolls.It is expected that a solid report will be produced. The impact on global markets will likely be minimal. There may be a small asymmetrical risk in the case of a negative shock (further risk-off). Yields, equities, as well as the euro, will most likely begin to fall under significant downward pressure. Interestingly, oil doesn’t rise any further ($111.50 p/b). It will be difficult for EUR/USD to avoid a break below 1.10 barrier. Technically speaking, this would put the 1.08/1.0636 zone back on the radar. EUIR/GBP has fallen below the 0.8277 2019 low. The parity levels for EUR/CHF (1.0125), are looming. The CE will see the FX defense of the Czech Republic, Hungary, and Poland again challenged.
News headlines
FebruaryInflation in South Korea was higher than expected at 0.6% m/m to rise at an accelerated 3.7% year/y.Consensus was for a 0.5%/3.5% rise. Higher commodity/oil prices remain a key driver. Core inflationHowever, it also accelerated, moving from 3% up to3.2% was the highest level in a decadeServices costs continued to rise, underscoring demand-side tensions. South Korea’s central bank kept policy rates at 1.25% at their last meeting. However, its sharp upward revision to inflation forecasts suggested that there would be more rate hikes soon. Lee, outgoing governor, stated that one more rate hike would be not considered tightening as the level of accommodation has risen because of inflation.
The EU is seeking to remove Russia’s most-favored nation status at the World Trade Organization. Such a move is possible on the basis of the WTO’s national security exemption and would further hit the €95bn Russian exports to its biggest trade partner by slamming it with tariffs. Canada has revoked its most-favored country status for Russia on Thursday.American lawmakers have proposed legislation that would end permanent normal trade relationships with Russia. They also urge President Biden to initiate the process of suspending Russia as a WTO member.