February 21, 2023
President Biden visited Ukraine, where he pledged “unwavering support” to the country as the Russian invasion nears the one-year mark.
Today’s podcast
Overview: false start
- A very quiet start to the week with the US on President’s Day
- Biden’s surprise visit to Kiev makes headlines
- Hardly any market movements or data flow
- Coming up: RBA minutes, global PMIs
It was a very quiet start to the week with little data flow and the US on vacation for Presidents Day. The big news of the last 24 hours came on the geopolitical front with a surprise visit to Kiev by President Biden.
President Biden visited Ukraine, where he pledged “unwavering support.” for the country as the Russian invasion nears the one-year mark. This comes amid signs that Russia is preparing for a major offensive that will include more air forces than previously and reports, denied to EU officials by State Councilor Wang Yi, that China may be planning to supply Russia with weapons. Developments in Ukraine are a less significant driver for markets than at the start of the conflict, although developments underscore that geopolitical risk remains high and that almost a year after Russia’s invasion, there is no endgame in sight.
In terms of market action, the US was set for President’s Day, but futures markets are suggesting that the recent trend of higher yields and marginally weaker stocks will not break into the new week. S&P futures are currently down 0.3% while Treasury futures are also weaker, suggesting a slight rise in yields. German 10-year bond yields rose about 2 basis points. ECB Governing Council member Olli Rehn said in an interview that “with inflation this high, further rate hikes beyond March seem likely, logical and appropriate”, adding: “I expect we will reach the final rate over the summer .” Markets are currently pricing in a high of around 3.6% from July.
European equities were little changed, with a decline in consumer staples and technology stocks offsetting a rise in commodity-exposed stocks. In an otherwise calm 24 hours, Chinese stocks were an outperformer, with the CSI 300 rising 2.5% for its best daily performance since November. In the FX markets, the dollar was flat against the DXY and movements against most major currencies were small. However, the AUD managed a 0.5% gain against the dollar to trade around 0.6913.
The only dates worth mentioning were Eurozone Consumer Confidence rose to -19 in February from -20.7. This is in line with consensus and brings confidence to the highest level in a year. Confidence has recovered from a low of -28.7 in September but remains at levels well below the long-term average. A relatively mild winter, easing energy fears and easing headline inflation helped boost the index.
Markets attention now turns to an update on growth momentum in the form of tonight’s February Flash PMIs. On the growth prospects that The Bundesbank’s monthly report indicated that the German economy could do “slightly better” than its December forecast for a growth of -0.5% compared to 2023, but warned: “There is no significant improvement in sight. The report offered a more pessimistic outlook than last week’s European Commission forecast of 0.2% growth. Stubborn underlying inflation remains a clear concern in Europe and underlying inflationary pressures are likely to be slow to ease as the report notes that “tangible second-round effects on prices are to be expected”. That comes after comments from the ECB’s Schnabel late last week that “a broad disinflationary process in the euro area has not even begun” and that “there is a risk that inflation will prove more persistent than what is currently being priced in by financial markets”.
Come
- RBA minutes for February are released today but they are unlikely to offer much new on top of the recent announcements, although it will be interesting to see if the December options of 0bp, 25bp and 50bp, despite the more hawkish move in the last few minutes, in where the options on the table have been outlined, broader messages are retained.
- NZ PPI for Q4 will be released this morning.
- Global PMIs today are a gauge of whether the more positive view that Europe is avoiding recession holds – the consensus sees the euro-zone-wide reading at 50.7 vs. 50.3, while the UK composite index is at 49.0 vs. 48.5 should stay under 50. US PMIs are also something to watch for in terms of growth ratios, although more weight will be given to the ISMs next week.
- The German ZEW survey is expected to rise from 16.9 to 23 for the expectation component, while the current situation component is seen from -58.6 to -50.5.
- CPI Canada The headline rate is expected to fall from 6.3% to 6.1%, while the key core metrics each fall by a tenth, the median from 5.0% to 4.9% and the trimmed mean to 5.2% seen by 5.3%. The BoC has said that “if economic developments develop broadly in line with the MPR outlook, the Governing Council expects to keep interest rates at current levels”, with the inflation data a key test of whether the data flow will support central banks a pause allows interest rates to reach levels where the economy is expected to slow enough to bring down inflation over time. Markets are pricing in a 15% chance of a 25 basis point gain at BoC’s March meeting. Also overnight, Canadian retail sales sold out.
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