HC-AM Morning Report - Mid-Week Summary

Good Morning,

Here are this morning's headlines:

ECB Rate Decision- At 12:45 GMT the ECB will announce their latest interest rate decision where the markets are expecting Frankfurt to maintain the status quo of 0%. The ECB will be looking at ways to mitigate the depreciation in the euro that we have seen following the invasion of Ukraine. Indeed, since the conflict, EURUSD sank close to a five-year low (although it has seen some appreciation in the last few days breaching the 1.10 mark yesterday). Of course, such a depreciation is concerning for the Eurozone given that it will raise the costs of imports and thus?exacerbate the record high levels of inflation which stood at 5.8% in February. Some economists including BNP Paribas’ Spyros Andreopoulos have posited whether the ECB may have to intervene in the foreign exchange market to support the euro – moves which they have previously done in the wake of the Japanese Tsunami and the launch of the currency. While this is just a possibility?(and somewhat unlikely), in recent weeks Poland, Hungary and the Czech Republic have intervened to support their respective currencies given the impact that the conflict in Ukraine had on them. For instance, in Hungary the Forint depreciated from around 310 against the dollar in early February to over 365 at the start of this week.

The market will also be paying close attention to any announcements around a possible end date to the ECBs APP and PEPP programmes, with many analysts expecting the latter to continue through to September 2022.?

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Financial Support for Ukraine-Yesterday, the IMF agreed on a $1.4bn emergency fund to Ukraine to help alleviate the impact of a deep recession, which the organisation is forecasting. This follows The World Bank approving a $723m package consisting of loans and grants for Ukraine earlier this week – of which the UK pledged $100m. Furthermore, The World Bank are also seeking to pass a $3bn aid package in the coming months.??

Over in Washington, a $13.6bn aid package is also going through the various stages of congress with the bill expected to pass the Senate early next week. This would involve the approval of $6.5bn in funds to support the US military increasing their presence in Nato’s Eastern European territories and an additional $6.8bn in humanitarian and financial aid to Ukraine and other allies.

In Ukraine, Kyiv is issuing war bonds which have currently summed $270m and there is some talk of the government issuing NFTs to support its military expenditure.

US Inflation-At 13:30 GMT US Inflation figures are released where they are expected to come in at 7.9% - a sizable increase from the previous 7.5% print. This would represent the highest level in 41 years and there is growing concern that the rising costs of energy and food will continue to push prices further moving forward. While the FED are expected to raise rates by 25bpts next week, prior murmurings of a 50bpt rise have now been hushed given the risk-off impact of the conflict in Ukraine. Hence, the FED continue to find themselves in a precarious balancing act and today’s data and subsequent reactions will therefore be closely followed.?

Have a great day.

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