Tag Archive: ECB
ECB’s Turn
Overview: The Fed's
hawkish hold and signal that it may raise rates two more time this year sent
ripples through the capital markets. Risk appetites have been dealt a blow. However,
China's rate cut and likely additional supportive measures after disappointing
data, helped lift the CSI 300 by 1.6%, the most this year. The Hang Seng rose
by nearly 2.2%, the most in three months. Europe's Stoxx 600 is snapping a
three-day advance and US index futures...
Read More »
Read More »
Euro: Thumbnail Sketch Ahead of the ECB Meeting
The euro has traded between roughly $1.0485 and $1.1100 so
far this year. The average is about $1.08, where it traded above yesterday for
the first time in 2 ½ weeks.
Recall that the euro rallied from around $1.05 in mid-March
(amid speculation that the banking stress was going to force the Fed to cut) to
around $1.1100, where it stalled in late April and early May.
We argued that the rate cut expectations had swung too far
and that as they...
Read More »
Read More »
PBOC Surprise Rate Cut and a Strong UK Labor Market Report Ahead of US CPI
Overview: A surprise cut in China's seven-day repo
and a stronger than expected UK employment report are session's highlights
ahead of the US CPI. The base effect alone suggests a sharp fall in the
year-over-year rate, while the median forecast in Bloomberg's survey has been
shaved to a 0.1% month-over-month gain. The dollar is under pressure and is
weaker against nearly all the G10 currencies. It is mixed against the emerging
market currencies....
Read More »
Read More »
Japan’ Q1 GDP was Revised Up, While the Eurozone’s was Revised Down
Overview: The back-to-back surprise rate hikes by
the Australia and Canada spurred speculation that the Fed could hike next week,
and this lifted US rates and helped the dollar recover. The odds of a hike
increased, according to the indicative pricing in the Fed funds futures market
from about a 20% chance to a little above 35%. now. At yesterday's high, the
two-year yield was up a little more than 25 bp since the low before the US
employment data...
Read More »
Read More »
The Greenback Stalls after Yesterday’s Surge as US Negotiators Move Closer to Last-Minute Deal
Overview: Yesterday's dollar surge has stalled. It is
consolidating its gains and is softer against all the G10 currencies. After
popping above JPY140 yesterday, there were no follow-through greenback buying
in Tokyo. Most emerging market currencies are also firmer, including the South
African rand, which plummeted by 2.8% yesterday on the back of the central
bank's warning of downside currency risks as it delivered a 50 bp hike. The
Chinese yuan...
Read More »
Read More »
The Dollar Consolidates after Powell Sapped its Mojo
Overview: Federal Reserve Chair Powell's offered a
stronger case for a pause in the monetary tightening before the weekend and
this sapped the dollar's mojo. The greenback is mostly consolidating through
the European morning in quiet turnover. The JP Morgan Emerging Market Currency
Index is trying to snap a four-day decline. The South African rand is
recovering from its recent slide and is up nearly 1%. The South Korea won is
benefitting from...
Read More »
Read More »
The Euro Stalled Near Its Best Level since April 2022 Ahead of ECB’s Decision
Overview: Without making
a commitment, the Federal Reserve opened the door to a pause in its tightening
cycle and the market has concluded it is over. The dollar slumped to new lows
for the move against sterling (and the Mexican peso), while euro stalled as it
approached last week's high, which was the best level since April 2022. The
dollar remains soft against most of the G10 currencies, today. The Norwegian
krone is leading after the 25 bp hike...
Read More »
Read More »
Fed Day
Overview: A sharper than expected decline in US job
openings and weaker factory orders coupled with intensifying bank stress sent
ripples through the capital markets. The large US bank index fell 4.5%
yesterday, the most in six weeks, while the regional bank index fell nearly
5.5%, its biggest loss since March 13. Both indices took out the March lows. The
US 10-year yield unwound Monday's increase and the two-year note yield fell
back below 4.0%...
Read More »
Read More »
Risk-Off Mood Dominates
Overview: Perhaps it was the extent of First Republic
Bank's loss of deposits that were reported with earnings yesterday, but risk
appetites dried up today. Asia Pacific equities were trounced outside Japan
today. Hong Kong and mainland shares that trade there set the tone today
falling 1.7%-1.9%. China's CSI 300 fell for the fifth consecutive session. Taiwan
and South Korean markets fell more 1.4%-1.6%. Europe's Stoxx 600 is off almost
0.5%,...
Read More »
Read More »
Good Friday
Overview: Activity throughout the capital markets remains
light as most financial centers in Europe are closed for the Easter celebration.
Hong Kong, Australia, New Zealand, and Indian markets were closed as well. Still,
most of the equity markets in Asia Pacific advanced, led by South Korea's
Kospi's nearly 1.3% advance. The market responded favorably to news that
Samsung would cut its production of memory chips and shrugged off its smaller
than...
Read More »
Read More »
March: Going Out like A Lamb after Wrestling with a Lion
Overview: The banking stress that roiled the markets
this month has eased. However, the emergency lending by the Federal Reserve,
vias the discount window and new Bank Term Funding Program hardly slowed in the
past week ($152.6 bln vs. $163.9 bln). Money markets took in more funds. Almost
$305 bln has flowed to them over the past three weeks. The US KBW bank index is
up 3.75% this week coming into day (after pulling back 1.2% yesterday). Europe's...
Read More »
Read More »
The Dollar Jumps Back
Overview: The pendulum of market expectations has
swung dramatically and now looks for 100 bp cut in the Fed funds target this
year. That seems extreme. At the same time, the dollar's downside momentum has
stalled, suggesting that the dollar may recover some of the ground lost
recently as the interest rate leg was knocked out from beneath it. The euro
twice in the past two days pushed through $1.09 only to be turned away.
Similarly, sterling pushed...
Read More »
Read More »
Fragile Calm to End the Volatile Week even with the Quadruple Expirations
Overview: The support for First Republic Bank shown
by a consortium of US banks by shifting $30 bln of deposits is helping break
the financial anxiety that has gripped the market for more than a week. The
liquidity provisions for Credit Suisse by the Swiss National Bank also are
contributing to improved sentiment. The Fed's balance sheet expanded sharply
last week as the bridge banks were extended credit to help the unwind of SVB
and Signature...
Read More »
Read More »
Swiss National Bank Support Steadies Market as ECB Faces Difficult Choice
Overview: The pendulum of market psychology is
swinging dramatically. Amid the US banking crisis, Credit Suisse's long-running
pressures percolated back to top-of-mind, sending ripples through the capital
markets, trigging a sharp slide in the euro. The SNB support is helping the
markets calm today. The odds of a 50 bp hike by the ECB today have been cut to
about 50% compared with a nearly 100% a week ago. The market has about a 66%
chance of a 25...
Read More »
Read More »
Investor Anxiety Continues to Run High even If More Comfortable ECB 50 BP Tomorrow and 25 bp Next Week by the Fed
Overview: The capital markets remain unsettled. Asia-Pacific
bourses rose, but European markets are sharply lower, with the Stoxx 600 off
1.3%, giving back the lion's share of yesterday's gains and US equity futures
are lower. Benchmark 10-year yields are off 3-9 bp in Europe, with widening
core-periphery yields. The yield on the 10-year US Treasury is off a dozen
basis points to about 3.56%. Two-year yields are also sharply lower, led by the
15-16...
Read More »
Read More »
Powell Sends the Two-Year Yield above 5% and Ignites Powerful Dollar Rally
Overview: Federal Reserve Chair Powell's comments to
the Senate Banking Committee were seen as hawkish by the market, even though it
has been clear to most observers that the 5.10% median terminal rate that the
Fed projected in December would be increased. Also, it seemed well appreciated
a few Fed officials support a 50 bp hike at the February 1 FOMC meeting, two
days before a "hot" jobs report that showed over 500k jobs were
filled. It...
Read More »
Read More »
US Dollar is Better Bid Ahead of Powell, while Aussie Sells Off on Dovish Hike by the RBA
Overview: The US dollar is trading with a firmer bias against
nearly all the G10 currencies ahead of Federal Reserve Chairman Powell's
semi-annual testimony before Congress. Speaking for the Federal Reserve, the
Chair is likely to stay on message which is higher rates are necessary to cool
the overheating economy. This comes on the heels of the Reserve Bank of
Australia's 25 bp hike and indication that it is not pre-committing to an April
hike. The...
Read More »
Read More »
Potential Brexit Breakthrough Helps Sterling, while France and Spain Report Stronger Price Pressures
Overview: There are two important developments. First,
the stronger than expected February inflation reports from France and Spain
have sparked a jump in European interest rates and the swaps market is
beginning to price in a 4% terminal rate by the European Central Bank. The
deposit rate is now at 2.50% and is widely expected to rise to 3.0% in the
middle of next month. Second, a tentative agreement to resolve the dispute over
the Northern Ireland...
Read More »
Read More »
Ueda Day
Overview: Rising rates and falling stocks provided the
backdrop for the foreign exchange market this week. The dollar appreciated
against all the G10 currencies but the Swedish krona, which is still correcting
higher after the hawkish pivot by the central bank. The market looks for a
later and higher peak in the Fed funds rate. This coupled with the risk-off
sentiment helped the dollar extend its recovery after falling since last...
Read More »
Read More »
Fed Tightening Seen Extending into Q3
Overview: The prospect that the Federal Reserve tightening
cycle continues into early Q3 is underpinning the greenback today against
most of the G10 currencies. The dollar bloc is the notable exception, and they
are posting minor gains, perhaps encouraged by the firmer equity markets. The
minutes of this month’s FOMC meeting appear to show wide support for quarter
point hikes going forward and there did not seem to be much discussion of the...
Read More »
Read More »