CreditAgricole Asia overnightGeopolitics continue to rule investor sentiment. News that theG7 is looking at coordinated sanctions against Russian exports, especially oil,sent oil and other commodity prices soaring in Asia. News out of China’s NPCover the weekend that signals it will be seeking to boost growth, have also pushedcommodity prices higher. Higher commodity prices are threatening to forcecentral banks to slam on the monetary policy brakes faster than would otherwisebe the case, which is hurting sentiment. S&P500 futures and Asian bourseswere trading significantly in the red at the time of writing. In G10 FX, theoutperformers were the Antipodean currencies on the back of higher commodityprices, the JPY was supported by weaker equities, and the SEK and EUR were theunderperformers during the session.EUR: help me out to help you out The EUR is hurting becauseinvestors see it as a relatively cheap and very liquid hedge against furtherescalation of the Ukraine crisis. On the more fundamental side, since theoutbreak of the crisis, the EUR has also been stripped of any semblance of rateadvantage, as markets believe that the latest geopolitical developments wouldforce the ECB to keep its very dovish policy in place for much longer. This,coupled with the intensification of the stagflation headwinds battering theEurozone (in part, due to the crisis and the sanctions on Russia) have sent theEUR real rates and yields plummeting, adding to the misery of EUR investors.Ahead of this week’s ECB meeting, the market view is that arenewed dovish message from the Governing Council will increase the downsiderisks for the EUR. All that being said, we think that there are at least tworeasons to expect that the March policy meeting can be less dovish thanexpected and thus less negative for the EUR: (1) the stagflationary impact fromthe Ukraine crisis has rendered current ECB policies far less effective andeven counterproductive, especially given (2) that they could trigger furtheraggressive FX selloff and fuel imported inflation, without improving theEurozone financial conditions. We therefore think that the Governing Councilwill signal that the Ukraine crisis may delay but not derail its plans to exitits accommodative policy. The ECB can further consider the beneficial effect ofless negative deposit rates, coupled with asset purchases as a way to (1)stabilise the EUR and thus the imported energy inflation, (2) prop up Eurozonebank profitability and (3) keep the Eurozone financial conditions broadlysupportive.NatixisMacro Picture · Russia-Ukraine: Asia equities sharply lowerMonday as oil soared to just shy of $140 a barrel after the White House said itwas considering an embargo on Russian supplies. European natural gas hit a newrecord high (+ 17% to an unprecedented price of 225 euros per megawatt hour).·United States: excellent Employment Situation Report, with an increase innonfarm payrolls of 678 thousand in February (compared with 481 thousand inJanuary, this estimate having been revised upwards), which was way above the 423thousand Bloomberg consensus. The unemployment rate improved to 3.8% (down from4.0%). At the same time, average hourly earnings were flat in February (0% MoM,for an increase of 5.1% YoY), when the consensus had been for a 0.5% increase. · Eurozone: disappointing retail sales, with an increase of only 0.2% after a2.7% decrease in December. The high volatility displayed by retail sales is awarning against reading too much into any one monthly reading. It isconceivable, however, that the currently elevated inflation will start to weighon consumer spending.
Source: Tickmill
