- Federal Reserve Chair Jerome Powell said on Monday that the US central bank must move fast to bring too-high inflation to heel and will, if needed, use bigger-than-usual interest rate hikes to do so. Powell said that the labour market is very strong, and inflation is much too high, saying there is a need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability. Powell repeated yesterday that the Fed's reductions to its balance sheet could start by May, a process that could further tighten financial conditions. Powell said there is excess demand, adding that "in principle" less accommodative monetary policy could reduce pressure in the labor market and help stabilize inflation without pushing up unemployment, generating a soft landing rather than a recession. He pointed to an economy that is very strong and is well-positioned to handle tighter monetary policy.
- European Central Bank President Christine Lagarde said on Monday that the world's two top central banks will move out of sync in the foreseeable future, as the war in Ukraine has vastly different effects on their economies. She said that the two economies are in a different place in the economic cycle, even before the war in Ukraine, adding that for geographical reasons, Europe is way more exposed to the war than the US. Lagarde said the US economy is less reliant than Europe's on commodity imports and its trade will also be less affected, so that the two central banks will need to move out of sync. Lagarde added that because of the war, Europe will need to speed up the greening of its economy to reduce its reliance on energy from Russia, its biggest supplier of natural gas.
- The UAE Cabinet has yesterday approved the use of crowdfunding in the public and private sectors to finance new projects. The Cabinet has also adapted a new system for work injuries that will protect the rights of workers in the private sector if they are hurt on duty. The federal legislation will specify the mechanism for reporting and investigating an injury as well as how injured workers should be compensated. The Cabinet had also adopted the UAE Gender Balance Council Strategy 2022-2026 to enhance the presence of women in leadership positions. Finally. the Cabinet adopted a new law that allows co-operative societies, to be listed on the UAE's financial markets to attract new partners.
- Bloomberg has reported that Abu Dhabi wealth fund ADQ is set to invest some USD 2bn in Egypt, purchasing shares in a number of companies including Commercial International Bank. A WAM statement yesterday said that Abu Dhabi Crown Prince His Highness Sheikh Mohamed bin Zayed al Nahyan is in Egypt on a fraternal visit.
Today’s key economic data releases and events
15:00 BR BCB Copom Meeting Minutes
17:15 EU ECB President Lagarde Speaks
Fixed Income
- US Treasuries crumbled on comments from Federal Reserve chair Jerome Powell that suggested the Fed could support 50bps hikes at upcoming FOMC meetings. Powell also indicated the Fed could tighten to beyond a neutral stance on the policy rate in their fight against decades-high inflation in the US. Yields on the 2yr UST rose almost 18bps in response, closing the day at 2.1153% while the 10yr added 14bps to 2.2896%.
- Across the rest of developed markets bonds were also weaker. Yields on the 10yr gilt added 14bps to close at 1.635% while the 10yr bund yield rose 10bps to close at 0.463%. The losses extended into emerging markets with sell-offs all over emerging European markets.
FX
- Markets moved in favour of the dollar to start the week with the broad DXY index up 0.27% at 98.498. The hawkish commentary from Fed chair Jerome Powell helped to push Treasury yields higher and will eventually draw flows toward dollar assets. EURUSD fell by 0.3% to 1.1016 even as some ECB members provide a glimpse that the bank could tighten policy later this year. USDJPY continues to extend its gains, up by 0.25% overnight to 119.47 while GBPUSD was relatively flat on the close, settling at 1.3169, down less than 0.1%.
- In commodity currencies, USDCAD was the standout with the pair moving marginally in favour of the loonie. USDCAD settled at 1.2593, down by less than 0.1%. AUDUSD fell 0.2% to 0.74 while NZDUSD sank 0.3% at 0.6886.
Equities
- European equity markets continue to be buffeted by the conflict in Ukraine and the related higher oil prices. The CAC and the DAX lost -0.6% each yesterday, while the FTSE 100 added 0.5% as oil and commodity stocks related positively to another move higher in energy prices.
- In the US, the prospect of more aggressive tightening weighed on the key indices. While the S&P 500 closed down just marginally, the NASDAQ dropped -0.4% and the Dow Jones -0.6%.
- Within the region Egypt’s EGX 30 was bolstered by the depreciation in the currency and the index added 4.9% on the day. The DFM also closed higher (0.3%) while the Tadawul (-0.3%) and the ADX (-0.5%) both fell.
Commodities
- Oil prices rose sharply at the start of the week as the EU openly considers whether to ban imports of Russian oil. Brent futures settled up 7.1% at USD 115.62/b while WTI added more than 7% to USD 112.12/b. There isn’t unanimity on the part of the EU so far on whether they will fully move to cut out Russian crude flows but the market may price in that as an eventuality.
- Metals markets generally moved higher overnight. Gold prices closed up 0.7% at USD 1,936/troy oz with the rest of the precious metals complex also moving higher. In industrial metals, aluminium rose 4% to USD 3,521/tonne while nickel continues to show wide and volatile moves, down 15% overnight to USD 31,380/tonne.
Click here to download charts and tables
Emirates NBD Research