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Despite Russian officials calling for less military operations around Kyiv, fighting has continued widely across Ukraine this week. Ukraine has signalled it would be willing to give up its aspirations to join NATO, and block western states from placing military bases or nuclear weapons on its grounds. Despite this, it has also aimed to gain bilateral security guarantees for example from the US or some of the larger European countries, which we consider unlikely. Another key remaining issue is the eastern Donbass area, where Russia appears to increasingly focus on. Media reports with regards to Ukraine’s willingness to make any territorial concessions have been mixed, but we do not see how Russia could spin the results from its ‘special operation’ as a win domestically without gaining control over at least the regions in Eastern Ukraine. Despite the optimism we have seen in the markets recently, we think the war is still unfortunately far from over. Read our latest take in Research Russia-Ukraine: Talk is cheap – we expect no immediate breakthrough in peace talks but market focus to shift elsewhere, 31 March. As the war drags on, central bankers appear increasingly open for front-loading rate hikes to tame the inflationary… Read More »Weekly focus: Optimism in the markets despite war dragging out

Summary United States: Soaring Price Gauges Turn Up the Pressure on the Fed The Fed's difficult job got harder this week. Its preferred inflation gauge set another fresh 40-year record high, while the ISM prices paid measure shot up 11.5 points to 87.1. Payrolls increased 431K in March with steep upward revisions that lifted the past two months' gains, but personal income is not quite keeping pace with price increases. Small wonder, the yield curve temporarily inverted, a sign the bond market is losing faith in a soft landing. Next week: Trade Balance (Tue.), ISM Services (Tue.), FOMC Meeting Minutes (Wed.) International: Eurozone Inflation Continues to Accelerate Eurozone March CPI inflation quickened more than expected to 7.5% year-over-year, driven by higher energy prices, with other price gains more modest. Still, the overall rate of inflation should see a timely move by the European Central Bank to less accommodative monetary policy despite a mixed growth outlook. Sentiment surveys from China and Japan were soft in tone, suggesting subdued growth from those economies during the first quarter. Next week: Mexico CPI (Thu.), Brazil CPI (Fri.), Canadian Employment (Fri.) Credit Market Insights: Mortgage Rates Accelerate in March as Homebuyers Rush to Lock In… Read More »Weekly economic and financial commentary

The minutes of the Federal Reserve’s and European Central Bank’s last policy meetings will likely grab the chunk of investors’ attention next week as the economic agenda quietens down somewhat. The Reserve Bank of Australia is not anticipated to announce any policy shifts at its meeting, but Canadian employment numbers might boost expectations of a 50-basis-points rate hike by the Bank of Canada. However, the evolving geopolitical situation with Ukraine will probably once again be a more important driver for the markets.  

Equity markets remain in recovery mode as gains are held. Meme stocks lose momentum but GME spilt rekindles interest. US employment slowing but revision helps stocks. A slightly calmer week again after some recent volatility, well for equity markets at least. Bond markets remain highly agitated and await a showdown with the Fed. Bond traders seem to be penciling in a recession pretty sharply as they push short-term yields higher. This caused the now well-followed yield curve to invert. And go below zero, ie 2-year rates are higher than 10-year rates. This usually has a pretty decent record of identifying imminent recessions but some analysts are beginning to question the theory. The chart below looks pretty clear-cut to us. US recessions are the shaded areas that follow each move below the black zero line. Back to the week then and the employment report on Friday basically just pushed the decision out for another month. Fed Chair Powell has bet the house on the continued strength of the US economy, backing it to handle multiple rate hikes and 50 bps next month. The bond market is not so sure and neither are we. Friday's jobs report though was a bit underwhelming… Read More »Week Ahead on Wall Street: Selling pressure likely to resume as flows flip

The Reserve Bank of Australia is likely to keep the key rate on hold at 0.10%. Australia’s wage price growth not enough to endorse a near-term rate hike. RBA’s cautious stance could hit AUD/USD hard but reaction to be limited. An interest rate hike in Australia this year is “plausible,” Reserve Bank of Australia (RBA) Governor Philip Lowe said last month. But not so fast, as the central bank is likely to play the waiting game when it meets to decide on its monetary policy on Tuesday, April 5, at 0430 GMT. Uncertainty around the Ukraine crisis, minor signs of wage inflation and the May Federal election are some of the key factors that could lead the RBA to maintain its cautious stance. Growth in wage inflation not enough The Australian central bank is likely to keep the Official Cash Rate (OCR) on hold at a record low of 0.10% during its April meeting. Having gradually walked back on its pledge of no rate rise before 2024, the RBA still remains in a patient mode after highlighting that the war in Ukraine is a major new source of uncertainty in its March policy announcements. The central bank’s stance is unlikely to change… Read More »Reserve Bank of Australia Preview: The waiting game could hit the aussie hard

A combination of factors prompted aggressive selling around EUR/USD on Thursday. Fading hopes for peace in Ukraine weighed heavily on the euro and exerted pressure. The risk-off impulse, Fed rate hike bets boosted the USD and added to the selling bias. Traders now seem to have moved on the sidelines ahead of the US monthly jobs data. The EUR/USD pair witnessed a dramatic turnaround on Thursday and plunged nearly 125 pips from the fresh monthly peak, around the 1.3185 region amid fading hopes for a de-escalation in the Ukraine war. In the latest developments, Russian President Vladimir Putin struck back at Western sanctions and threatened to halt contracts supplying natural gas unless they are paid in roubles. The EU gets about 40% of its gas and 30% of its oil from Russia and has no easy substitutes if supplies are disrupted. This, in turn, fueled worries that the European economy would suffer the most from the spillover effects of the Ukraine crisis and weighed heavily on the shared currency. The uncertainty over Ukraine took its toll on the global risk sentiment, which was evident from a sharp fall in the equity markets. The anti-risk flow boosted demand for traditional safe-haven… Read More »EUR/USD Analysis: Bulls seem to be losing control amid Ukraine crisis, focus shifts to NFP

A ceasefire followed by a frozen conflict would embolden the dollar and oil bid, weighing on stocks. Ukrainian surrender would have similar implications, especially for oil. If both sides reach a deal, markets would surge, gold and oil would tumble. NATO involvement in the war would crash markets, boost all the others. An unlikely regime change in Russia would send oil tumbling down, boost stocks. How will the Russia-Ukraine war end? This is a question on everybody's minds, with no clear answer – it is hard to know what is going in the head of Vladimir Putin, Russia's President. However, these five scenarios offer potential scenarios for markets and the main assets: stocks, gold, oil, and the US dollar.  1) Ceasefire and frozen conflict Russian and Ukrainian officials have been in touch almost since the day Moscow ordered its troops to capture Kyiv, but talks have been fruitless so far. However, occasional reports of progress and the fact a dialogue exists, open the door to a ceasefire.  A halt to hostilities would be seen as the first step toward a long-term resolution, but it may turn into a frozen conflict, similar to the one in Ukraine's Donbas region, which is… Read More »Russia-Ukraine: Five scenarios for the war and implications for stocks, the dollar, gold and oil

AUD/USD Current Price: 0.7490 Crude oil tumbles on US announcements oversupply of 180 million barrels from strategic reserve over the next six months. US core PCE inflation rises to 5.4% YoY in February. AUD/USD bears move in ahead of Nonfarm Payrolls.  The AUD/USD pair has been under pressure on Thursday as commodity prices take a raincheck. Hopes from earlier this week that peace talks would lead to a ceasefire in Ukraine five weeks after Russia's invasion have dwindled, yet, oil prices are under pressure due to the US announcing they will release up to 180 million barrels of oil from their strategic reserve over the next six months in an effort to combat the surge in oil prices.  As a result of the Russian invasion of Ukraine, oil spot prices had rallied from around $75/bbl at the start of 2022 to a peak of above $130/bbl, but in the wake of the US announcement, oil prices were down over 5% overnight, with WTI trading at USD99.69bbl the low on the day.  Additionally, US stocks were poised to end the biggest quarterly decline in two years on a down note on Thursday as worries about the continuing conflict in Ukraine. AUD is a high beta currency, correlated… Read More »AUD/USD Forecast: Ukraine crisis safe haven demand weighs into Nonfarm Payrolls

Daily market outlook on major Update Time: 31 Mar 2022 03:00GMT EUR/USD – 1.1167 Euro's rally above previous resistance at 1.1137 to a 4-week high at 1.1170 in New York yesterday on broad-based retreat in usd suggests corrective upmove from March's fresh 22-month 1.0807 bottom remains in force and further gain to 1.1200/05 may be seen before prospect of decline later due to loss of upward momentum. On the downside, a daily close below 1.1100 signals a temporary top is made and risks stronger retracement to 1.1071/72, break, 1.1045. Data to be released on Thursday Japan industrial output, housing starts, construction orders, Australia building permits, China NBS non-manufacturing PMI, NBS manufacturing PMI. U.K. nationwide house price, Swiss retail sales, France producer prices, CPI, consumer spending, Germany retail sales, unemployment rate, unemployment change, Italy CPI, unemployment rate, EU unemployment rate. U.S. continuing jobless claims, initial jobless claims, PCE price index, personal spending, personal income, Chicago PMI and Canada GDP.

Annual Core PCE inflation is forecast to rise to 5.5% in February. A strong inflation print could revive expectations of a 50 bps rate hike in May. Technical outlook points to a bearish tilt in the US Dollar Index.   The dollar has failed to build on the previous week’s gains and instead has lost nearly 1% in the first half of the week. In the absence of high-tier data releases, the positive shift witnessed in risk sentiment seems to be making it difficult for the dollar to find demand. On Thursday, the US Bureau of Economic Analysis will release the Personal Consumption Expenditures (PCE) Price Index data for February. The Core PCE Price Index – the Fed’s preferred gauge of inflation that leaves out volatile food and energy prices – is expected to rise to 5.5% from 5.2% in January. Inflation and Fed rate outlook Following the FOMC’s March policy meeting, policymakers have adopted a hawkish tone by voicing their willingness to vote in favor of 50 basis points (bps) rate hikes in upcoming meetings to tame inflation. Chicago Fed President Charles Evans said that a 50 bps hike could help them move rates close to neutral. Cleveland Fed President… Read More »US February PCE Inflation Preview: Will inflation data confirm 50 bps May hike?