News & Analysis


Despite little in the calendar for scheduled data releases, events continue to move apace with news emerging yesterday that the UK is close to joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The CPTPP for short, is a trading bloc covering 11 countries in the Indo-Pacific region, with the UK to become a 12th member. Given the distances involved and the geographic isolation of the UK from the partnership’s other members, it remains to be seen just how beneficial membership will be for Britain. It is, however, another sign that the UK is beginning to find a place in the world following its exit from the EU. Signs that the UK government is beginning to move on from the Brexit negotiations that consumed so much political time and energy over recent years will be a welcome sign for investors, given the damage that the process inflicted on Britain’s reputation for stable and effective government. It was in this vein that yesterday also saw British Chancellor Jeremy Hunt appear before the Treasury Select Committee to defend the measures in his most recent budget announcement. With Hunt managing to achieve what his predecessor-but-one could not without setting markets on fire, introducing a series of policies designed to grow the supply side of the economy, the parliamentary scrutiny attempted to distil some more of the detail as to exactly what these measures would entail and how effective they would be. As could probably be expected, the Chancellor avoided the hard answers, instead focusing on providing as little new information as possible. As a result, yesterday was a relatively quiet day for the pound, which was flat over the session against the euro and down just 0.2% against the dollar, and with little market moving news expected, today looks set to offer more of the same.


The single currency traded in a relatively tight range yesterday and closed roughly flat on the day despite the broad resurgence in the dollar on portfolio rebalancing. In terms of noteworthy news out of the eurozone yesterday, the most important headlines came once again from ECB executive board member Isabel Schnabel, who downplayed risks to the eurozone financial system but did acknowledge that credit conditions are likely to tighten in the region, albeit not to the extent of the US. In terms of deposit flight out of the banking system, Schnabel, who is head of the ECB’s open market operations, stated that this hasn’t been visible at all, but there has been some shift from overnight deposits into time deposits, which is natural given the higher yielding nature of the latter.

Today, monetary policy remains front and centre for the single currency with the release of inflation data out of Spain and Germany. Released at 08:00 BST, headline inflation in Spain fell from 0.9% MoM to 0.4%, which alongside considerable base effects almost halved the year-on-year figure from 6% to 3.3%. Given annual inflation series are now being benchmarked against March 2022, when Russia invaded Ukraine and commodity prices soared, disinflation in the headline data is likely to accelerate considerably, but for the ECB the focus remains on the current pace of core inflation. In Spain, the core measure was fairly unresponsive in comparison to the headline measure as it fell just 0.1pp from 7.6% YoY after holding stable at 0.7% MoM from February. In this context, the reaction in eurozone government bonds seems stretched and we expect the negative impact the Spanish data had on the euro to retrace. Naturally, being the largest eurozone economy, the German data will pack the largest punch for markets at 13:00 BST. Estimates are for the headline figure to drop from 8.7% to 7.3% and for the pace of monthly price growth to moderate slightly from 0.8% to 0.7%. The real test will be backing out a core figure, which economists will be scrambling to do shortly after the data is published.


Month-end, quarter-end, and fiscal year-end flows seemed the dominant factor in what was otherwise a fairly uneventful session in FX markets yesterday. After a rocky month and start to the year for the dollar, the accountancy flows seemingly favoured trimming some exposure to alternate havens such as JPY and high beta expressions such as NOK, SEK, and AUD, with all four currencies sitting at the bottom of yesterday’s G10 rankings. While most month-end models pointed to moderate USD sales, what they did predict correctly is the buying in global equities and selling in global bonds. US equity indices closed between 1-1.79% higher yesterday, with European equities trading in a similar range, while bond yields across the board climbed once again. Outside of the uncorrelated ebb and flow in markets, the testimonies of officials in charge of macroprudential measures in front of the House finance committee was relatively uneventful, although the Fed’s top banking regulator, Michael Barr, did acknowledge that there “were significant supervisory failings at the Fed” in the run-up to SVB’s collapse. Outside of that, the only other major piece of news was that Republican Representative Kevin Hern was introduced to the Fed’s dot plot as he disclosed yesterday that Powell, when asked in a private meeting with US lawmakers, suggested that one further hike was anticipated. The fact that made news just highlights how thin yesterday’s news flow was.

Today should be slightly more eventful for markets as flash inflation data is set for release from Spain and Germany ahead of the French and eurozone numbers tomorrow, while the Fed’s balance sheet will come back into scope with the release of the H.4.1 at 21:30 BST.  Specifically within the data on factors affecting the Fed’s reserve balances, markets will be focusing on the usage of the Fed’s FIMA repo facility as data last week showed a foreign monetary authority drew $60bn from the dollar liquidity line.


The Canadian dollar continued its rally for the third consecutive trading day, putting it once again at the top of the G10 currency board. The trading session was light on news and data, and factors like interest rates and commodity prices had minimal impact. Instead, the run-up in global equities likely helped to support the currency, as every index across North America, Europe, and Asia closed in the green. Nevertheless, based on correlations we would have expected an even larger rally than the 0.2% achieved by CAD yesterday, as the S&P 500 rose 1.4%, while the TSX gained 1.1%. These correlations could be structurally weakening because of the recent banking-driven shift in the macro backdrop. Although USDCAD did not react much to the headlines that came through, the Bank of Canada also shared its future playbook for the use of its balance sheet. Toni Gravelle, one of the BoC’s Deputy Governors and the most markets-focused member of the Governing Council, spoke about market liquidity measures at a conference in Montreal. Among the highlights: Quantitative tightening now has a potential end date, anticipated between late 2024 and the first half of 2025. Additionally, Gravelle noted that Canadian banks are safe, but that the BoC was “ready to act” if global banking stresses have spillover effects on Canada. He also pushed back on the market’s pricing of cuts, saying it was far too early to think about normalising rates. With regards to the future playbook, Gravelle said that the BoC would more clearly delineate between purchases of GoC bonds that are meant to restore market functioning, and quantitative easing, which are bond purchases meant to stimulate the economy. The key difference would be that in the former case, they would make lowball offers at a price and size that would be punitive outside of crisis situations, encouraging participants to return to the market, whereas the latter would see them try to raise prices to push down yields and incentivise borrowing, consumption, and investment. Today, the main piece of interesting Canadian data will be the Survey of Employment, Payrolls, and Hours, but while this information gives informative context on the labour market, it does not move markets.

FX Elsewhere

In the Czech Republic, yesterday saw the CNB announce its latest rate decision, holding the two week repo rate at 7.00% as had been widely expected. With policy makers voting 6-1 in favour of maintaining the current monetary policy stance, it was the hawkish tone of the commentary that was of note. In particular, the bank pushed back against any notion of imminent rate cuts and re-emphasised its commitment to a strong currency, with Governor Michl highlighting a strong exchange rate as a key tool in fighting inflation. This hawkish language on intervention came despite the koruna already approaching its recent highs against the euro, seen just prior to the current bout of concern over the global banking sector. Markets, however, took note of the comments and EURCZK fell 0.25% through yesterday’s session as a result, a trend that has continued in trading this morning, and delivering exactly the response that the CNB was looking for.



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