May 9, 2022
“Emerging market currencies extended a five-week losing streak as the dollar surged to its highest levels in two decades. US Treasury yields and concerns of the impact of China’s latest covid restrictions have boosted the safe haven appeal of the greenback.”
Tim Hallinan – Trading Director
The US sought to tighten sanctions on Russia yesterday by blacklisting a swath of economic executives at Gazprombank for the primary time, and barring corporations from offering Russia with companies akin to accounting and consulting. A senior Biden administration official stated the brand-new US sanctions focused 27 executives of Gazprombank, Russia’s third-largest lender and a subsidiary of state-owned vitality firm Gazprom. However, the measures didn’t freeze the corporate’s property or prohibit transactions with it. The latest sanctions come as the West attempts to put further pressure on Russian President Vladimir Putin for his invasion of Ukraine and the deadly aftermath that followed. Diplomats stated Hungary continued to carry again progress in Brussels on the EU’s proposed sixth package deal of sanctions, which can embody a phased-in oil embargo geared toward squeezing Moscow’s sources of money.
The head of a leading UK business lobby group has called on chancellor Rishi Sunak to draw up an emergency budget to support companies struggling with the rising costs of energy, raw materials, and labour. Shevaun Haviland, director-general of the British Chambers of Commerce (BCC), will write to the government today to ask for a package of economic measures to ease the cost of doing business in the UK, as demand shows signs of slowing down. In an interview, conducted after her first year as director-general, Haviland said business confidence had fallen sharply since the start of April as companies were forced to absorb soaring energy costs while the economic outlook deteriorated. The BCC has proposed the Treasury push back its increase to national insurance that took effect last month to ease cost pressures on employers. It also recommended Sunak cut value added tax on energy bills from 20 per cent to 5 per cent.
Sterling is weaker than most major currencies in the early morning trade. The Bank of England has warned the UK faces a “sharp economic slowdown” this year as it raises interest rates to try to stem the pace of rising prices. Rates rose to 1% from 0.75%, their highest level since 2009 and the fourth consecutive increase since December. Inflation is at a 30-year high and set to hit 10% by the autumn, as the Ukraine war drives up fuel and energy prices. As a result, households are reining in their spending, and growth is being hampered. There’s an economic idiosyncrasy in the UK that makes it “one of the most vulnerable countries in the world right now,” according to investment strategist Mike Harris. A major problem for Britain is that its mortgage market is “heavily short-term,” meaning that rate rises will most likely immediately trigger losses to household incomes, without actually dealing with inflationary issues.
The euro is stronger against sterling and weaker against the dollar this morning. Oil prices slipped today, along with stock markets in Asia, sparked by weak China data and fears a global recession could dampen oil demand, with investors eying European Union talks on a Russian oil embargo that could tighten global supplies. US West Texas Intermediate crude was at $109.24 a barrel, down 53 cents, or 0.5%. EU capitals should consider seizing frozen Russian foreign exchange reserves to cover the costs of rebuilding Ukraine after the war, the bloc’s top diplomat has said, as the west debates how to force Moscow to pay for some of the damage the conflict has caused. EU officials have examined the question of whether Russia’s reserves could somehow be deployed in the Ukraine reconstruction effort, but Brussels has not come forward with any policy proposals for how Russia could be made to contribute.
The dollar is well bid against most major currencies overnight. In the clearest sign that the economy is booming yet, US employers had a record 11.5 million job openings as of March. This is expected to lead to the Fed deciding that it’s time to cool the economy, leading to tightening of financial conditions. This results in some combination of higher interest rates, lower stock market valuations, a stronger dollar, and tighter lending standards. America’s oil refiners are enjoying a surge in profits as inventories of critical fuels are drained across the US, sending prices sharply higher just weeks before the start of the country’s annual driving season. The sharp rise in the cost of fuel at the pump in recent months has prompted a record-sized release of emergency crude oil reserves from the US, and the White House has warned oil companies against profiteering amid the war in Ukraine and spiralling inflation.
Investors rushed to the safety of the US dollar, while global stocks slid ever closer to a bear market, as the Federal Reserve’s aggressive tightening path and China’s Covid lockdowns worsened the outlook for economic growth. The greenback extended a two-year high, rising today against all of its major peers. US equity-index futures and European stocks fell, sending the MSCI gauge of world stocks 16% lower from a November peak. Oil declined as concern over slowing demand in Asia outweighed a Group-of-Seven pledge to ban Russian oil. Treasuries resumed a selloff, with the five-year rate jumping to the highest since 2008. A wave of risk aversion is sweeping through global markets after Friday’s US jobs data left little room for a change of course in the Fed’s rate-increase and quantitative-tightening plans.
Main Economic Data/Central Banks/Government (All Times CET)
8:00 a.m.: Norway March industrial production
8:45 a.m.: France March trade balance
10:30 a.m.: Euro area May Sentix investor confidence
11:30 a.m.: Germany sells bills
2:50 p.m.: France sells bills
Russia celebrates Victory Day
Earnings include Novavax, Unicharm, Nippon Yusen, XPO Logistics, AMC, Microchip, Tyson Foods
To learn more about Ballinger & Co., please visit our website or our LinkedIn page.