Daily Market Outlook, March 8, 2022

Overnight Headlines

Asian stock markets are down sharply this morning as the global slide in equities continues. The Brent crude oil price is hovering close to $127bbl, around 25% higher than a week ago, and gas prices on some measures are around 80% higher. Reports indicate that US lawmakers have reached the outline of a deal to ban imports of Russian oil and are calling on allies to follow suit.

The British Retail Consortium’s measure of sales showed 6.7% annual sales in February down from 11.9% in January. Annual comparisons were flattered by last year’s lockdown measures, but reports suggest that the figures point to a decline in monthly volumes. German industrial production rose by a higher-then-expected 2.7% in January.

There seems to be nothing in today’s data calendar that is likely to distract market attention away from developments in Ukraine. The primary focus right now is probably on the very sharp further rise in energy prices seen in recent days. The big question is whether central banks will primarily see this as a further indication of inflationary pressures that needs to be responded to with tighter monetary policy or as an escalation of the downside risks for economic growth.

Policymakers at the US Federal Reserve and the European Central Bank are both in their blackout periods ahead of their latest monetary policy updates and that will also be true for the Bank of England after today. Therefore we will not get an immediate reaction to recent developments from any of them.

Today’s Eurozone Q4 2021 GDP release is an update. An upward revision to German growth suggests that the outturn for the Eurozone will also be revised up to 0.4% from the original 0.3% estimate. Nevertheless, that still leaves the pace well below that in the previous two quarters. The easing of Omicron restrictions should provide a support in Q1 2022 but after that the outlook currently looks uncertain.

In the US, the NFIB small business optimism index for February will provide an update on how that sector is being impacted by supply restrictions. Already released results for some components painted a mixed picture of the labour market in February. On the one hand employers are still finding vacancies hard to fill. However, both hiring plans and plans for wage increases were both scaled back.

The second reading for Japanese Q4 GDP is expected to be revised up modestly due to a bigger boost from private sector investment. Meanwhile, Chinese inflation data, to be released early Wednesday, are forecast to show annual CPI inflation still running at a low level. However, producer price inflation is more elevated, and it could be given a further lift in coming months by the recent rise in commodity prices.

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

USDJPY - 116.60/70 459m. 114.00 774m.
EURUSD - 1.1550/60 994m. 1.1130/40 546m. 1.1100 730m. 1.1010/20 536m. 1.0990/1.1000 1.94bn (1.75bn P).
GBPUSD - 1.3350/60 550m.
AUDUSD - 0.7350/60 632m. 0.7260/70 740m. 0.7240/50 677m.
NZDUSD - 0.6650 683m.
USDCAD - 1.2600 410m.
EURGBP - 0.8510 434m. 0.8430 437m.
USDCHF - 0.9340 400m. 0.9300 400m. 0.9210/20 860m.
EURSEK - 10.39 580m.
USDCNH - 6.45 400m. 6.38 705m. 6.35 460m. 6.30 470m. 6.29 400m.