Daily Market Outlook, March 25, 2022

Overnight Headlines

Asian equity markets are mixed this morning but are set to record a second weekly rise according to an index of Asia-Pacific shares. Front-month Brent crude oil fluctuated overnight and has risen by about 10% over the course of the week to near $120 a barrel. The US and the EU are expected to provide details of an agreement to reduce Europe’s dependency on Russia energy by increasing imports of US liquefied natural gas. The transition, however, will take time.

Official UK data released this morning showed a fall in February retail sales (excluding fuel) of 0.7%m/m, weaker than market expectations for a rise of 0.5%. The volume of sales is still up by 4.6% on the year. Overnight, UK GfK consumer confidence fell by 5 points to -31, the lowest since November 2020. The outlook for consumer spending looks particularly uncertain given the impact of higher inflation. The Office for Budget Responsibility predicted the biggest fall in real household disposable incomes in the coming financial year since the ONS data began in the 1950s despite fiscal support announced by the Chancellor in his Spring Statement.

Ahead, the latest update for the German IFO business survey will be watched. Anticipate a drop in the headline index to a one-year low of 94.0 in March from 98.6, especially given the country’s close energy links with Russia. The decline is expected to be driven mostly by the expectations component (to 92.0 from 99.2), while a less severe fall is likely for the current assessment index. Yesterday’s flash PMIs showed more moderate declines than forecast for both manufacturing and services, so the risk could be that the IFO index falls by less than forecast. But the data will probably add to evidence that Russia’s invasion of Ukraine will weigh on output but, at the same time, add to inflationary pressures.

In the US, the final reading of the University of Michigan consumer sentiment index for March is expected to be confirmed at 59.7, the lowest for over a decade, reflecting inflation concerns. Central bank speakers today include the Fed’s Williams and Barkin. The possibility of a 50bp hike at the Fed’s next meeting in May has not been ruled out.

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

EUR/USD: 1.0925 (453M), 1.1000 (1.69BLN) 1.1100 (574M)
USD/JPY: 118.50 (300M), 119.00 (325M) 119.25 (1.03BLN)
AUD/USD: 0.7375 (410M).
USD/CAD: 1.2400 (330M) 1.2610-15 (517M), 1.2650 (646M), 1.2670 (360M) 1.2700 (594M).
NZD/USD: 0.7000 (232M)