BoE into inflation fighting territory, Worst day for US tech equities in almost a year, and ECB strikes hawkish tone.
February 4, 2022
GBP/USD 1.3574 GBP/EUR 1.1849 EUR/USD 1.1456 USD/CAD 1.2714 EUR/CHF 1.0563 EUR/SEK 10.4284 EUR/NOK 9.9828 EUR/DKK 7.4406 USD/ILS 3.1969 AUD/USD 0.7108 NZD/USD 0.6640 USD/SGD 1.3447 USD/JPY 115.02 USD/CNH 6.3604 USD/INR 74.705 EUR/ILS 3.6623 GBP/ILS 4.3396 USD/ZAR 15.2718
The BoE voted 5-4 for a 0.25% interest rate hike to wrestle soaring inflation, bringing UK interest rates to 0.5%. Notably 4 members opted for a 0.5% hike, which would have seen interest rates at 0.75% highlighting the real threat of inflation to the UK economy, indicating an increasingly hawkish stance from the BoE. Furthermore, the BoE raised its inflation forecast to 7.25% which is expected to peak in April.
Pressure is mounting on the Prime minister, yesterday four senior aides resigned, meanwhile letters of no confidence are slowly filtering in to the 1922 committee. As we print, sterling is trading down 0.4% against the euro.EUR
The ECB has left rates unchanged, however comments from Lagarde indicated an increasingly hawkish stance, with markets interpreting the ECB’s comments as a signal to tightening monetary policy as early as march. This expectation has seen Germany’s 10-Year yield reach a three-year high and the EURUSD up 1.25% on yesterday’s open.
The STOXX 600 and DAX suffered losses yesterday down -1.76% and -1.57% respectively, with retail and technology stocks struggling.USD
The NASDAQ and S&P 500 fell yesterday down -4.7% and -2.4% in what was the worst day for US stocks in almost a year. The lackluster session was triggered by disappointing earnings from Meta (Facebook’s Parent Listing) which then reverberated through US stocks. Meta’s price fell -24% with user growth slowing and advertising revenue falling. Amazon stock rose 15% yesterday which served to soothe investors tech sector woes.
The US warned yesterday of Russian potential to fabricate a justification for war in Ukraine. Meanwhile, Eastern European leaders are calling for a ‘no appeasement’ policy from the West drawing similarities to the 1938 Munich agreement.
The DXY fell -0.6% yesterday, predominantly caused by the hawkish tone struck by the ECB, and interest rate hikes in the UK.ASIA/PACIFIC
South Korean inflation slowed to 3.6% more than the Bank of Korea’s 2% target. Philippine inflation slowed to 3% and Thai inflation picked up to 3.2%. The inflationary picture in Asia is much closer to central bank targets than European and North American inflation, where increasingly stringent monetary policy is required.
The Japanese five-year yield rose to zero for the first time since the BOJ first adopted a negative rate policy. There is growing speculation that the BOJ will join its western counterparts in tightening monetary policy, to keep control in what has historically been a very low inflation economy.
The MSCI Asia Pacific traded down -0.42% and the ASX traded up 0.59% in the Asian session.ILS
USDILS has climbed up 0.85% since the beginning of the week, pushing briefly above the 3.19 level as we print. The USDILS cross has seen above average volatility in the past 3 months (Nov-Jan).
Relations with neighboring Arab states has been improving predominately through an intricate network of trading relations. This is a tectonic shift for Israeli diplomacy in the region.Data & Events
UK – BOE Bailey Speaks
UK – Construction PMI
UK – Sells Bills
DE – Construction PMI
FR – December Industrial Production
NO – New central bank governor press conference
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