March 17, 2023

Daily Report 17/03/2023

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In macro-economic terms, there continued to be little impact on markets from the budget, especially as it was seen as broadly neutral for monetary policy and risk trends dominated. Although risk appetite strengthened in early Europe, fears quickly returned with fresh losses in equities around the US open. The latest ONS data suggested that there had been an increase in online UK job ads in the latest week, but consumer activity had slowed. There was choppy Sterling trading amid sharp fluctuations in risk appetite. The UK currency dipped after the US First Republic bank concerns, but reports of a support package triggered a rebound.

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The Euro held a steady tone after Thursday’s European open, but just ahead of the ECB policy decision, there were reports that the ECB had warned EU finance ministers that there could be vulnerabilities in the Euro-Zone banking sector. The Euro dipped in an immediate response given fears surrounding the financial sector. Futures market shifted into the decision, but the ECB announced that it would proceed with the 50 basis-point hike to 3.50%. According to bank President Lagarde, there were 3-4 members who opposed the move and wanted to take a wait and see approach at this time. There was a notable shift in forward guidance with the bank insisting that decisions would be data-dependent and determined by the dynamics of underlying inflation and the strength of monetary policy transmission. The bank was still concerned over inflation with inflation projected to be too high for too long. According to Lagarde, there will be a lot of further ground to cover if the baseline scenario is met, but this is a big caveat. According to staff projections, the headline inflation rate is now expected at 5.3% for 2023 from 6.3% previously due to lower energy prices, but the 2025 rate is still slightly above target at 2.1%. The Euro was subjected to choppy trading, particularly as there was further volatility across asset classes amid on-going banking fears.

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After the US open, there were reports that leading US banks such as JP Morgan were in talks to bolster First Republic Bank. Later reports suggested that major banks will provide up to $30bn in deposits for First Republic and the Fed also announced that it will provide liquidity through the discount window. US initial jobless claims declined to 192,000 in the latest week from 212,000 the previous week and below consensus forecasts of 205,000 while continuing claims declined to 1.68mn from 1.71mn. Housing starts increased to an annual rate of 1.45mn for February from 1.32mn the previous month and above expectations of 1.31mn.

Key Data

14.00 Michigan Consumer Sentiment Index (Mar) Exp. 67 Prev. 67