IMF head says global growth will remain positive

• The International Monetary Fund Managing Director Kristalina Georgieva said yesterday that global economic growth this year will manage to stay in positive territory despite the war in Ukraine, but several countries with already weak economies may be tipped into recession. Georgieva said the Fund will lower its growth outlook when it releases new forecasts in April. The IMF last forecast 4.4% global growth for 2022 in January, down about a half percentage point from October forecasts, due to ongoing supply disruptions. She said shocks from higher energy and food prices caused by the conflict and punishing sanctions against Russia for its invasion of Ukraine will hit many developing countries hard, on top of tighter financial conditions as advanced countries raise interest rates.
• ECB policymaker Francois Villeroy de Galhau said the central bank needs to look beyond short-term swings in energy prices and focus on underlying inflation trends. He added the ECB needed to normalise monetary policy to keep people's inflation expectations anchored. Villeroy, who is also governor of the French central bank, said the energy transition could affect inflation positively and negatively, but its impact on energy costs was most likely to result in some inflationary pressure.
• UK public borrowing has fallen by more than half since its peak during the pandemic, as data by the Office for National Statistics showed borrowing for the first 11 months of the 2021/2022 financial year was GBP 138.4bn, 52% below the record GBP 290.9bn borrowed between April 2020 to February 2021. However, debt servicing costs are rising rapidly, and in February were 53% higher than a year earlier at GBP 8.2bn. Public sector net debt, excluding state-owned banks, totalled GBP 2.327tn pounds or 94.7% of GDP. Borrowing for 2021/22 is comfortably on track to undershoot the GBP 183bn or 7.9% of GDP forecast by the Office for Budget Responsibility, largely due to stronger-than-expected tax revenue.
• Inflationary pressures are becoming ever more evident in the MENA region, even before the worst of the fallout from the Ukraine conflict has manifested in domestic price baskets. In Morocco, CPI inflation rose to 3.6% y/y in February, the highest level since 2008. The country is struggling with a drought, the negative effects of which on food prices will be exacerbated by the Ukraine conflict. Earlier in the month, the Moroccan government reduced tomato exports in a bid to curb food price growth ahead of Ramadan. Meanwhile, in Lebanon, CPI inflation slowed in February, but remained painfully high at 214.6% y/y. The economic collapse in the country has seen triple-digit inflation for 26 consecutive months now, and as a major wheat importer these pressures will now ease more slowly than had been hoped. The government there has asked the US and other donors to help build up a wheat reserve for the country, a task made more complicated by the destruction of crucial silos in the Beirut port blast in 2020.

Today’s key economic data releases and events

11:00 GB CPI (YoY) (Feb) Forecast 5.90%

12:30 EU German Manufacturing PMI (Mar)       

16:00 GB BoE Gov Bailey Speaks                 

16:00 US Fed Chair Powell Speaks              

16:30 GB Annual Budget Release                

18:00 US New Home Sales (Feb) Forecast 813K

18:30 US Crude Oil Inventories                                  

Fixed Income

• Fed officials have doubled down on the need to tighten policy more aggressively in upcoming meetings with San Francisco Fed president Mary Daly indicating yesterday that it was need to “restrict the economy” in order to get inflation under control. James Bullard, president of the St Louis Fed, also said that “faster is better” in terms of how quickly the Fed should normalize policy.
• US Treasuries extended their decline overnight with the 2yr UST yield up by around 5bps at 2.1641% while the 10yr yield rose 9bps to 2.3825 with both bonds edging higher in early trade today. Yields were generally higher across the board in developed markets with 10yr gilt yields up 7bps at 1.705% and the similar tenor bund up almost 4bps to a yield of 0.5%.
• Emerging market bonds closed weaker overnight with a broad index of USD-denominated bonds down by 0.4%.
• Egypt is planning the equivalent of a USD 500m samurai bond, their first bond issued in Japanese yen. It will be a five-year issue with a yield of around 0.8-0.85% according to press reports. Elsewhere Boubyan Bank is pricing a 5yr USD sukuk at UST+115bps.

FX

• EURUSD managed to close up 01.12% overnight at 1.1029 although that included a strong recovery from a drop to as low as 1.0960. USDJPY rose sharply overnight, up more than 1% at 120.80 with the yen likely to suffer from yield differentials as the Fed moves more aggressively this year. GBPUSD also gained strongly, up 0.7% at 1.3262.
• In commodity currencies USDCAD fell 0.18% to 1.250, the smallest movement among the peer group. NZDUSD led the gains, up more than 1% at 0.6954 while AUDUSD added almost 1% to 0.7470.

Equities

• Equity markets were on the front foot from the off yesterday, as Asian shares ticked higher at the start of the day. The Shanghai Composite added 0.2% while the Nikkei climbed 1.5%.
• European equities were similarly buoyant, as the FTSE 100 (0.5%), the DAX (1.0%) and the CAC (1.2%) all closed higher.
• In the US, the Dow Jones, the S&P 500 and the NASDAQ added 0.7%, 1.1% and 2.0% respectively.

Commodities

• Oil prices oscillated sharply overnight after an early rise to almost USD 120/b on the Brent market was faded over the rest of the day with the contract settling lower by 0.1% at USD 115.48/b. WTI showed a similar pattern with the April contract expiring at 111.76/b. The focus in oil markets remains on the EU and whether they will indeed follow the US and UK in imposing an embargo on Russian oil.

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