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Tuesday, March 15, 2022

Daily Market Overview

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Markets

• Persistent uncertainty on the economic impact of the war in Ukraine combined with country specific themes caused some ‘diffuse price action’ on global markets today. This morning, Chinese equities again faced hefty selling despite solid eco data as markets pondered the impact of further regulation, elevated commodity prices and persistent political and trade tensions with the US. The risk-off initially spilled over to Europe with regional indices, at some point recording losses of 2.5%+. However, selling pressure gradually subsided. European equities currently are losing about 0.50% . US indices are rebounding 1.0%/1.5%. Eco data for sure weren’t the driver for this improvement. The expectations component of German ZEW investor confidence tumbled more sharply than ever before in March, from + 54 to minus 39.3, the biggest drop since the start of the series in 1991. ZEW President Achim Wamback commented that ‘The experts … expect a stagflation in the coming months. The worsened outlook affects practically all sectors of the German economyGeneral business conditions of the manufacturing sector as measured by the NY Fed also nosedived to the lowest level since May 2020 (from 3.1 to 11.8). The survey responses were collected at the start of the Russian invasion in Ukraine (between 2 & 9 March). On the positive side of the economic story, pressure on some commodities continues to ease, with brent oil falling below $100/b. US and German yields are correcting lower after yesterday’s steep rise. US yields are ceding between 6 bps (2-y) and 2 bps (30-y). German yields are easing between 4 bps (2 & 5-y) and 1.8 bps (30-y). The move was supported by a limited decline in inflation expectations. At the same time, lingering global uncertainty and technical/tactical repositioning ahead of tomorrow’s Fed decision probably are also in play. Intra-EMU spreads narrowed modestly (Italy -3 bps).
 
• On Fx markets, the decline in the oil price apparently is providing some breathing space to the euro and the yen. EUR/USD briefly surpassed the 1.10 barrier (currently 1.099). The USD/JPY rally finally did run into resistance, with the pair currently hovering around 118. Sterling initially didn’t profit from solid UK labour market data published the morning. EUR/GBP even briefly tested the 0.8455 area. However, sterling later staged a an intraday rebound, both  against the euro. EUR/GBP currently trades near 0.841. Cable tested the psychological barrier of 1.30  this morning in Asia but is now changing hands in the 1.3065 area. CE currencies (Czech koruna, forint, zloty) all record modest gains. Polish February inflation eased from 9.4% to 8.5% on government measures/tax cuts to slow prices rises. Still the figure was higher than expected.
 
News Headlines

• The Norwegian central bank published its quarterly regional network survey today. Interviewed contacts indicated that business activity continues to rise and they expect even stronger growth over the next six months. Over half of the interviewees reported capacity constraints, the highest share since autumn 2007. That’s even without taking into account the consequence of the Russian invasion in Ukraine as the survey was conducted early February. Contacts have revised up their estimate for annual wage growth this year from 3.3% in November to 3.7%. The main reason for concern is uncertainty related to capacity constraints and a rapid rise in prices. The NOK benefited from the rather hawkish survey with EUR/NOK dropping from an intraday top around 9.98 to 9.85 currently. The move comes even as oil prices drop below $100/barrel (Brent) for the first time since end February. Norwegian money market expect the Norges Bank to deliver (25 bps) rate hikes at every remaining meeting this year (7). The policy rate currently stands at 0.50%.

• The WSJ reports that Saudi Arabia is in active talks with China to price some of its oil sales to China in yuan instead of dollar. Talks accelerated this year because of Saudi unease over the US’s security commitments to defend the kingdom. China buys more than a quarter of all Saudi oil exports. Switching the oil denomination would boost the international appeal of the Chinese currency.
 

Graphs & Table

GBP/USD: cable struggles not to fall below the 1.30 barrier despite solid UK eco data of late.

Oil drops below $ 100/b, slighlty easing inflation expectations

EUR/NOK: prospect of additional interest rate support keeps EUR/NOK cross below 10 despite easing oil price.

USD/RUB: rouble extends rebound, with 100-barrier against the dollar again within reach.

Note: All times and dates are CET. More reports are available at KBCEconomics.be which you may sign up to.

This document has been prepared by the KBC Economics Markets desk and has not been produced by the Research department. The desk consists of Mathias Van der Jeugt, Peter Wuyts and Mathias Janssens, analists at KBC Bank N.V., which is regulated by the Financial Services and Markets Authority (FSMA).
These market recommendations are the result of qualitative analysis, incorporating room for past experiences and personal assessments. The views are based on current market circumstances and can change any moment. The most prominent input comes from publicly available data, financial news, economic and monetary policies and commonly used technical analysis.
The KBC Economics – Markets desk has used reasonable efforts to obtain this information from sources which it believes to be reliable but the contents of this document have been prepared without any substantive analysis being undertaken into these sources.
It has not been assessed as to whether or not these insights would be suitable for any particular investor.
Opinions expressed are our current opinions as of the date appearing on this material only and can be opposite to previous recommendations due to changed market conditions.
The authors of this recommendation do not warrant the accuracy, completeness or value (commercial or otherwise) of any recommendation. Neither are the authors liable to those who receive these recommendations for the content of it or for any loss or damage arising (whether in tort (including negligence), breach of contract, breach of statutory duty or otherwise) from any actions or omissions of the authors in reliance on any recommendation, or for any claim whatsoever in respect of the content of, or information contained in, any recommendation. Any opinions expressed herein reflect the judgement at the time the investment recommendation was prepared and are subject to change without notice.
Given the nature of this advice (linked to currencies and interest rates) , the advice is overall not specific in nature.   As such there is no reference to any corporate finance contract and as such there is no 12 month overview based on the different advices.
This document is only valid during a very  limited period of time, due to rapidly changing market conditions.

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