14 April 2022
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Inflation still in focus

By Khatija Haque

  • UK inflation rose faster than expected in March, reaching a 30-year high of 7% y/y from 6.2% y/y in February. CPI rose 1.1% m/m last month, up from 0.8% m/m in February driven higher fuel prices and continued supply chain disruptions for goods. Services inflation also accelerated however, likely reflecting greater consumer spending on hospitality and entertainment as covid restrictions eased. With energy prices set to rise further in April when the price cap adjusts, inflation may move even higher in the UK. We expect the BoE to raise rates by another 25bp to 1.0% in May.
  • Tunisia has raised its fuel prices by 5%, with petrol set to increase from TND 2.22/litre to TND 2.33. This is the third time this year that Tunisia has hiked prices at the pump as it looks to offset the effect of the rise in international oil prices on its subsidy payments, especially as the country looks to clinch a new IMF deal. Fiscal reform has long been an IMF demand of Tunisia, and the Fund is also looking for a meaningful cut to public sector pay before a new deal is reached, something that is hard to get past the country’s powerful unions.
  • The UAE has introduced new rules on food pricing, requiring suppliers to obtain approval before increasing the price of around 11000 food commodities, according to local press. Suppliers will need to show proof that their own costs of purchasing have increased and the economy ministry will decide by how much they an increase their selling price. The move will likely prevent price gouging, where sellers increase prices by more than is considered reasonable or justifiable. The price of around 300 essential foods including grains, bread, chicken will also be closely monitored at 40 outlets and co-ops to ensure prices are aligned with what is registered in the national database, and with prices of those goods in neighbouring countries.
  • US producer price inflation increased by more than expected in March rising 1.4% m/m and 11.2% y/y, up from 10.3% y/y in February. Core PPI (excluding food and energy) accelerated 9.2% y/y in March, up from 8.7% in February.
  • The Bank of Canada raised its benchmark rate by 50bp as expected overnight, following the Reserve Bank of New Zealand which hiked by 50bp yesterday morning. They are the first G10 central banks to have raised policy rates by 50bp in almost two decades, and the Fed is expected to follow suit in early May.  

Today’s Economic Data and Events

15:45 ECB monetary policy decision, rates expected to remain unchanged

15:00 Central Bank of Turkey interest rate decision, rate expected to remain unchanged

16:30 US retail sales (Mar) forecast 0.6% m/m

18:00 US University of Michigan consumer sentiment survey

Fixed Income

  • US Treasuries continued to bull steepen even as there are few data points to push the market one way or another following the release of the March CPI earlier this week. Yields on the 2yr UST fell almost 6bps to 2.3481% while the 10yr UST yield dipped by around 2bps to 2.6987%. The spread between the two bonds rose 3bps to a bit more than 34bps.
  • Bond markets closed higher across Europe overnight with 10yr bund yields down 2bps at 0.761% and the 10yr gilt closing essentially unchanged, albeit with a lower bias in yields. In emerging markets, South African yields edged higher by around 5bps to 10.05% while Indian bonds added 4bps to close at 7.19% on the 10yr.
  • Overnight the Bank of Canada raised rates by 50bps to 1% while South Korea hiked rates by 25bps to 1.5 at their meeting earlier today. Central banks in Turkey and the ECB set policy later today.


  • A swing back to risk-on sentiment helped to stall the dollar’s rally overnight with the broad DXY index falling back below the 100 level. EURUSD gained 0.5% to 1.0888 ahead of today’s ECB meeting. Markets will be watching for any sign of further hawkish shift from the ECB or a timeline when accommodative policy will start to be reversed. GPBUSD jumped up almost 0.9% to 1.3117 as elevated inflation raises the stakes for the Bank of England to continue hiking rates to dampen down price rises. USDJPY remains bid higher with the pair closing up 0.19% overnight at 125.62.
  • In commodity currencies, the loonie was the outperformer following the Bank of Canada’s 50bps hike. USDCAD closed down 0.6% at 1.2567 with the chance of additional hikes later this year. NZDUSD initially spiked higher on the RBNZ’s own 50bps hike but then faded those gains and fell 0.8% by the close to 0.6796 as the outlook for more modest policy ahead is unchanged. AUDUSD was relatively unchanged at 0.7451.


  • Equity markets took a break from recent selling yesterday, with most key indices closing higher on the day. In the US, the Dow Jones, the S&P 500 and the NASDAQ added 1.0%, 1.1% and 2.0% respectively.
  • Earlier in the day both the UK’s FTSE 100 and France’s CAC edged up 0.1%, but ongoing weak data out of Germany continued to weigh on the DAX, which lost -0.3% over the course of the session.
  • Locally, the DFM added 0.4%, but the ADX (-0.1%) and the Tadawul (-0.8%) both closed lower. Turkey’s Borsa Istanbul lost -0.1% and Egypt’s EGX 30 -0.5%.


  • Oil prices recorded another strong day of gains with Brent futures up nearly 4% at USD 108.78/b and WTI gaining 3.6% to USD 104.25/b. The IEA lowered their oil demand growth forecast for 2022 thanks to the Covid restrictions in China limiting consumption. Oil demand this year is still set to increase to more than 100m b/d by Q3, converging on pre-Covid levels of activity. On supply, the IEA estimates a drop in Russian oil production of 3m b/d by the end of the year as sanctions and firms avoiding trade with Russia has an impact.

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Written By

Khatija Haque Head of Research & Chief Economist

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