Markets have stabilized after the Ukraine crisis, but risks remain

Overall, markets appear to have stabilized following Russia’s shock invasion of Ukraine, at least for now. US equity markets staged a late and strong reversal overnight while Asian markets also rallied. Gold is back hitting the 1900 handle while WTI Oil is trading around 96, after briefly breaking above 100. In the currency markets, the Dollar softened against the Swiss Franc while the Aussie is up with the British Pound today.

Technically, the focus will be on the Euro and the British Pound for today. As long as 1.1287 minor resistance in EUR/USD and 1.3485 minor resistance in GBP/USD hold, the risk remains on the downside for further decline. Likewise, as long as 130.03 minor resistance in EUR/JPY and 155.48 minor resistance in GBP/JPY hold, further declines are in favor. We will see next.

In Asia, at the time of writing, the Nikkei is up 1.88%. The Hong Kong HSI index is down -0.11%. China Shanghai SSE is up 0.71%. The Singapore Strait is up 0.90%. Japan’s 10-year JGB yield is up from 0.021 to 0.208. Overnight, the DOW rose 0.28%. The S&P 500 rose 1.50%. The NASDAQ rose 3.34%. The 10-year yield fell -0.008 to 1.969.

Fed Waller prefers to raise the rate by 100 basis points by the middle of this year

Fed Governor Christopher Waller said in a speech that his preference is “to increase the target range by 100 basis points by the middle of this year… appropriate interest rate policy takes the target range to 1-1.25% in early summer “. That would be “slightly below” the pre-pandemic level when inflation was “significantly lower” and the Fed’s balance sheet less than half.

Nevertheless, he added, “of course, it is possible that the state of the world will be different following the attack on Ukraine, and that may mean that a more modest tightening is appropriate.”

“I will continue to monitor the geopolitical situation to assess the appropriate timing for this near-term monetary policy tightening,” Waller said. “These actions will take us into the second half of the year, when we will have six months of inflation data, and we can assess what the appropriate path will be for the remainder of 2022.”

Fed Bostic: Today’s events in Ukraine are on all of our minds

Fed Bank of Atlanta President Raphael Bostic said, “Today’s events in Ukraine are on all of our minds. We will be watching this closely here in Atlanta and throughout the Federal Reserve System to assess the economic and financial impacts,”

He still thinks four or more hikes may be needed this year if high inflation persists. However, “I’m really open to adjusting that as we get more clarity on how the economy is performing…the data can be maybe more pessimistic in terms of our inflation performance and whether that’s the case, I’m going to move”. my view, maybe 4 (hikes), and depending on how things go, it could be more than that.”

RBNZ Orr: Raising rates earlier avoids need for even higher rates

RBNZ Governor Adrian Orr said in a speech“Among many of our peer central banks, we were one of the first to start removing monetary stimulus and starting the tightening cycle.”

“Financial market prices for future interest rate levels have been very sensitive to our signals,” he added. “Market prices for future central bank policy rates continue to point to New Zealand likely to tighten policy sooner than many other comparable economies.”

“By bringing inflationary pressures under control quickly, by raising interest rates sooner, we aim to avoid the need for even higher rates in the future,” he said. “In other words, we are now taking your foot off the accelerator to minimize the need to use the brakes harder in the future.”

On the data front

Retail sales in New Zealand rose 8.6% quarter-on-quarter in the fourth quarter, above expectations of 6.2% quarter-on-quarter. Non-automotive sales rose 6.8% quarter-on-quarter, above expectations of 5.5% quarter-on-quarter. Tokyo’s core CPI rose from 0.2% y/y to 0.5% y/y in February, above expectations of 0.4% y/y. UK Gfk consumer confidence fell from -19 to -26 in February, below expectations of -16.

In the future, GDP data from Germany and France will be presented. The euro zone will publish an economic sentiment indicator. Later in the day, the US will release personal income and spending along with PCE inflation, durable goods orders and pending home sales.

EUR/CHF Daily Outlook

Daily pivots: (S1) 1.0298; (P) 1.0340; (R1) 1.0402; Continued….

EUR/CHF is recovering after plunging to 1.0277. But still, with 1.0459 resistance intact, further decline is expected. The general downtrend from 1.1149 should resume. Sustained trading below 1.0298 will target a 61.8% projection from 1.0936 to 1.0298 from 1.0610 to 1.0216. However, a strong break of 1.0459 will bring a fresh bounce from 1.0610 resistance.

Overall, the long-term downtrend from 1.2004 (2018 high) is still ongoing. The next target is a 61.8% projection from 1.2004 to 1.0505 to 1.1149 to 1.0223. A sustained break will target a 100% projection at 0.9650. Either way, a break of the 1.0610 resistance is needed to be the first sign of a bottom. Otherwise, the outlook will remain bearish.

Economic Indicators Update

GMT Ccy Events Real Forecast Previous amended
21:45 NZD Retail sales Q/Q Q4 8.60% 6.20% -8.10% -8.20%
21:45 NZD Retail sales excluding automobiles Q/Q Q4 6.80% 5.50% -6.70% -6.80%
23:30 JPY Tokyo CPI Core A/A Feb 0.50% 0.40% 0.20%
00:01 GBP Consumer Confidence GfK February -26 -16 -19
07:00 USD Germany Import Price Index M/M Jan. 0.20% 0.10%
07:00 USD Germany GDP Q/Q Q4 F -0.70% -0.70%
07:45 USD France Consumption expenditure M/M Jan -0.30% 0.20%
07:45 USD France GDP Q/Q Q4 0.70% 0.70%
09:00 USD Euro area M3 money supply Y/Y Jan 6.70% 6.90%
10:00 USD Eurozone Economic Sentiment Indicator February 113 112.7
10:00 USD Eurozone Services Sentiment February 10.3 9.1
10:00 USD Eurozone Industrial Confidence February 14.2 13.9
10:00 USD Eurozone consumer confidence February F -8.8 -8.8
13:30 USD Personal income M/M Jan -0.30% 0.30%
13:30 USD Personal expenses Jan 1.50% -0.60%
13:30 USD January PCE M/M Price Index 0.30% 0.40%
13:30 USD PCE Price Index Y/Y Jan 5.50% 5.80%
13:30 USD January PCE M/M Core Price Index 0.50% 0.50%
13:30 USD Core PCE Price Index Y/Y Jan 4.80% 4.90%
13:30 USD Durable Goods Orders Jan 0.60% -0.70%
13:30 USD Durable goods orders excluding transportation Jan 0.40% 0.60%
15:00 USD Door-to-door sales pending M/M Jan -0.20% -3.80%
15:00 USD Michigan Consumer Sentiment Index Feb F 61.7 61.7

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