Daily Market Outlook, February 25, 2022

Overnight Headlines

Stock markets staged some recovery in Asia despite a series of targeted sanctions announced by the West yesterday in response to Russia’s military offensive in Ukraine (reports suggest that forces are near the Ukrainian capital Kyiv). The sanctions include restrictions of exports of high-tech goods, limits on Russia’s access to western capital markets and restrictions on some wealthy individuals with links to the Kremlin. The measures, however, did not extend to cutting Russia from Swift, the global payments system. President Biden indicated that the US will release additional oil reserves as needed to cushion the economic impact. China’s central bank also provided additional liquidity to its banking system, which may have supported market sentiment.

The simultaneous impact of higher global energy prices in increasing inflation and reducing economic growth is likely to further complicate the monetary outlook for major central banks. Even before the Russian invasion of Ukraine, UK GfK consumer confidence data released overnight showed a sharp fall to -26 from -19, the lowest since the start of 2021, with households becoming more pessimistic about their finances and the economy.

Ahead today, the key economic data release is the US Fed’s preferred inflation measure, the personal consumption expenditure (PCE) deflator, which is expected to show another rise in annual headline inflation in January to over 6%, its highest for almost forty years. That would mirror the rise already seen in the CPI inflation measure to 7.5%. Given the further rise in global oil prices, expect a further increase in annual inflation rates in the coming months.

In the Eurozone, the economic sentiment index is forecast to have improved in February, helped by rises in industrial and services confidence. The results, however, will have not captured the impact of Russia’s invasion of Ukraine. Earlier this morning, France released HICP inflation showing a bigger-than-expected rise to 4.1% in February from 3.3%. Next week’s Eurozone flash CPI estimate is forecast to show a rise in annual inflation from January’s 5.1%, with further increases in train especially after the recent surge in European natural gas prices.

BoE Chief Economist Huw Pill is scheduled to give closing remarks on the final day of the Bank’s annual conference on the monetary toolkit. ECB President Christine Lagarde is also due to speak after today’s Eurogroup meeting.

Asian stock markets mostly recovered some ground, with the Nikkei up nearly 2% and Chinese stocks also higher. UK equity futures are positive. Brent crude oil has fluctuated significantly, peaking above $105 a barrel yesterday before falling below $100. It has risen back above $100 overnight

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.1200-10 (1.65BLN), 1.1225 (649M) 1.1245-55 (1.6BLN), 1.1260-70 (782M)1.1275-80 (620M), 1.1285-00 (4.38BLN), 1.1315-25 (1.28BLN) 1.1330-40 (1.2BLN), 1.1345-50 (690M), 1.1375-85 (980M) 1.1395-1.1410 (647M), 1.1425-35 (1.04BLN), 1.1455-60 (390M)
USD/JPY: 113.45-55 (915M), 113.65-75 (940M) 113.90-00 (875M), 114.30 (388M), 115.0 (375M) 115.25 (570M), 116.00 (441M), 116.15-20 (510M 116.40 (1.39BLN)
EUR/GBP: 0.8350-55 (520M). USD/CHF: 0.9300-10 (985M)
USD/CAD: 1.2605-50 (975M), 1.2850-55 (395M)
AUD/USD: 0.7125-30 (1.04BLN), 0.7140-50 (575M) 0.7225-35 (3.2BLN), 0.7250 (388M), 0.7270 (483M)