March 13, 2023

Daily Report 13/03/2023

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Sterling continued to gain some ground after Friday’s European open with further backing from the stronger than expected UK GDP data. There was also further optimism that Chancellor Hunt would be able to relax fiscal policy in the March 15th budget and potentially provide a further cushion against the cost of energy prices. The UK currency was again resilient despite vulnerable risk conditions and a sharp decline in UK equities. There was however gains against the Dollar after the US jobs data. Overall risk appetite remained fragile and Sterling dipped back. The rebound in risk appetite underpinned Sterling on Monday with markets also monitoring developments surrounding the UK arm of Silicon Valley Bank. At the European open, the UK government announced that SVB UK will be sold to HSBC which provided important relief as contagion fears subsided.

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Risk conditions managed to stabilise ahead of Friday’s New York open with the Euro holding steady against the dollar. The focus this week will be on Thursday when the European Central Bank is expected to announce another hike in the interest rate, this time increasing it by 0.50%. The single currency did see a boost on Friday afternoon following the US jobs data.
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US non-farm payrolls increased 311,000 for February compared with consensus forecasts of around 200,000 and there was only a small downward revision for January to 504,000 from the original reading of 517,000. There was a small decline in manufacturing jobs and a loss in transport and warehousing employment. According to the household survey, the unemployment rate increased to 3.6% from 3.4% and above expectations of 3.4% with the increase in employment held to 144,000 amid a slight increase in the participation rate. Average hourly earnings increased 0.2% compared with expectations of 0.3%, with the annual increase at 4.6% from 4.4% previously. Concerns over financial-sector stresses had a larger market impact with a fresh shift in market pricing. Futures markets indicated that the odds had moved back in favour of a 25 basis point rate hike at this month’s policy meeting. The Silicon Valley Bank drama remained a key element with California regulators shutting the bank down on Friday. The FDIC confirmed that insured deposits will be safe, but there was uncertainty over uninsured deposits which were estimated at over $150bn and potentially near $300bn. After Monday’s Asian open, the US government announced that SVB customers will have access to all funds from Monday with the same situation for New York’s Signature Bank. The move triggered a relief rally in equities and there was a further shift in Fed pricing with markets completely pricing out the possibility of a 50 basis-point rate hike this month.

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