Daily Market Outlook, February 22, 2022

Overnight Headlines

Russian troops moved into two breakaway regions of Ukraine yesterday. President Putin said that they will perform “peace keeping functions” but there is speculation that this could lead to a move into the rest of the Ukraine. The UN security council met overnight and the UK’s emergency committee will discuss the situation today. The US has already announced some economic sanctions on Russian businesses and individuals and the UK and other governments are expected to do similar. Asian stock markets are all down sharply this morning and European and US markets will also be expected to open down. Meanwhile, gas and oil prices have both moved higher with Brent crude currently above $97bbl its highest since 2014. In other news, January UK public sector borrowing numbers were close to expectations suggesting that the annual deficit will be lower than originally forecast.

Following yesterday’s mixed UK PMI data, today’s CBI industrial survey will provide another take on conditions in February. The PMIs pointed to a sharp pick-up in activity led by services, although the manufacturing index was unchanged despite some evidence of easing supply bottlenecks. Last month’s CBI survey seemed to show a more robust profile for orders than the PMI indicator but also suggested that inflationary pressures remain intense.

In Germany, the February IFO survey will provide another timely gauge. The German PMI composite index posted its highest reading since last August on the back of a sharp acceleration in service sector activity, although the manufacturing index did fall albeit from an elevated level. Today’s IFO survey is expected to indicate some improvement in both current conditions and expectations.

In the US, the PMI data will be released today because of yesterday’s holiday. Services activity is likely to have accelerated as Omicron’s impact wanes and manufacturing may have also seen some improvement. The Conference Board’s consumer confidence measure has slipped from last summer’s peak but so far, it’s decline has been smaller than that of other confidence measures.

Bank of England policymaker Ramsden, who is scheduled to speak this morning was one of the four Monetary Policy Committee members who voted for a 50-basis point interest rate rise in February rather than just 25bp. Markets will be watching for indications whether he will continue to push for more aggressive action at the next policy meeting in March. Finally early Wednesday, New Zealand is expected to be the latest central bank to raise interest rates. Consensus expectations are for a third successive rate hike of 25bp.

US Treasury yields are sharply lower in the wake of today’s geopolitical news and other government bond markets will be expected to follow as investors look for a ‘safe haven’.

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.1300-05 (860M), 1.1330-40 (1.1BLN) 1.1350-60 (1.1BLN), 1.1400 (614M), 1.1450-55 (430M)1.1500-05 (460M)
USD/JPY: 114.00 (370M), 115.20-25 (1.87BLN), 116.00 (530M)
GBP/USD: 1.3625 (220M), 1.3650 (292M)
USD/CAD: 1.2500 (285M), 1.2600-10 (1.14BLN) 1.2695-00 (1.3BLN), 1.2750 (618M), 1.2800 (747M) 1.2825-55 (1.18BLN)
AUD/USD: 0.7050 (335M), 0.7190-00 (1.638BLN) 0.7240-55 (835M), 0.7300 (806M)
AUD/JPY: 100.00 (1.03BLN)