Friday, March 18, 2022

Daily Market Overview

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• It has been a hectic week for markets. There were positive signals coming from the Ukraine war about “significant progress” being made on peace talks only to be rebuffed by the Kremlin one day later. On the monetary policy front, the Bank of England dialed back its tone on inflation. It is increasingly worried about the external, war-driven (commodity) price shock on disposable income and spending and thus on economic growth. The Federal Reserve is much less concerned about the impact of geopolitics on growth but more so on inflation. It stepped up the fight this week by signaling six more rate hikes this year, some of which may be bigger-sized than the regular 25 bps. Fed Governor Waller in an interview argued for such 50 bps moves in coming meetings. He said he backed this week’s 25 bps move only because geopolitical events called for caution. Waller also wants to start reducing the balance sheet by July. His comments followed St Louis Fed Bullard releasing a statement today in which he comments the FOMC decision. He dissented because he wanted a 50 bps increase as well as a balance-sheet reduction plan. Bullard also finds it appropriate to raise the policy rate level to above 3% this year, revealing his position in the new dot plot. The Fed comments lifted the short-end of a flattening US yield curve. Changes range from +3.3 bps (2y) to -4.9 bps (30y). German yields inch 2-3 bps lower across the curve in a modest risk-off session. European stocks at some point lost 1.6% as investors took some chips off the table going into the weekend and after a week with gains that amounted to 5.5%. Losses were cut to a mere 0.4% in the meantime. Wall Street trades mixed. The DJI falls 0.3% but the Nasdaq ekes out a 0.70% profit. The euro retreated vs all majors. EUR/USD eases from 1.1091 at the open to 1.1035 currently. It also loses out against sterling, even as the British currency sees front-end yield support evaporating for a second day straight (2y minus 9 bps). EUR/GBP fully retraces yesterday’s post-BoE gain to trade around the 0.84 pivot. Interestingly, the Japanese yen is even underperforming the euro. Sure, risk sentiment improved as the session evolved. But even at the today’s equity lows, the yen was unconvincing. The Bank of Japan making clear this morning that it wouldn’t normalize policy any time soon even as inflation is expected to “clearly” rise is perhaps sticking to the currency. EUR/JPY is broadly stable around 131.55. USD/JPY surpasses a new big figure at 119 and is coming closer to the 119.53 resistance level (76.4% Fibonacci recovery of the 2015-2016 decline).
News Headlines

• Quite some headlines on Poland. Firstly, February economic data were unequivocally positive. At 0.2% M/M and 2.2% Y/Y employment growth was close to expectations. However, tight overall labour market conditions translated faster than expected wage growth. Average wages and salaries in the enterprise sector accelerated to 2.6% M/M and 11.7% Y/Y, suggesting a risk of a further growth in domestic price pressures. In its press release after the March policy decision, the NBP also took notice of a marked increase in wage growth. February industrial output (3.6% M/M and 17.6% Y/Y) also beat expectations, with a strong monthly performance of the manufacturing sector (5.0% M/M). PPI inflation slowed to 0.9% M/M and 15.9% Y/Y, however, from an upwardly revised 2.4% M/M. Despite strong activity data and high inflation, MPC member Wieslaw Janczyk today indicated that government measures to cap prices of food and fuels combined with the recent rebound of the zloty might be taken into accounted and lead to more cautious policy approach at the next meetings. The zloty today weakened for a second consecutive day. EUR/PLN currently trades at EURPLN 4.71 compared 4.66 on Wednesday evening. The comments of Janczyk might have played a role, but a less positive sentiment was also at work. In a separate news article, Reuters reports that the European Commission could soon approve Poland’s recovery plan. However, if the plan is approved, Poland will, according to report, only receive the disbursement of the EU funds later once it fulfils the obligations the EU has set with respect to restoring the rule of law. In concreto, the Polish government has to pass a law that disbands the disciplinary chamber and reinstate judges who were illegally suspended.

Graphs & Table

EUR/PLN: zloty loses for second day straight despite strong data but on soft NBP comments and fragile sentiment.

USD/JPY takes out a new big figure and comes closer to 119.53 resistance level.

UK 2y yield extends post-BoE decline as markets pare back hiking bets.

EuroStoxx50 continues to struggle with the pre-Covid high as investors take some chips of the table going into the weekend.

Note: All times and dates are CET. More reports are available at 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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