05/05/2022
The FOMC opted in favour of a 50 basis point rate hike yesterday. But there was no marked reaction following the announcement as the market had already factored in the move which had broadly transpired from the remarks of various Fed officials. Acknowledging the hardships posed by high inflation, the Fed chair Powell reached out to US households by stating that the Fed will be using available options from its tool box to address inflation. Jerome Powell also mentioned that a 75-basis point hike is not foreseeable but he is inclined towards successive 50-basis point hikes in forthcoming FOMC meetings. Regarding the US economic outlook, Powell highlighted the strong fundamentals of the US economy, despite the fact the US GDP growth rate declined to 1.4% in Q1. Downside risks remain the war in Ukraine, Covid restrictions in China, supply-side constraints and high prices, especially fuel prices. Powell also announced the reduction of the Fed’s balance sheet. Interestingly, 50% of the respondents of a poll by CNN indicate the current most important issue faced by the US pertains to its economy, far ahead of the 14% who voted for the war in Ukraine. Also 2/3 of the US population represented by the sampling size do not approve of President Biden’s handling of the US economy. Meanwhile, Joe Biden is expected to discuss with G7 leaders about further sanctions on Russia. Data due today include initial and ongoing jobless claims Q1 non-farm productivity and unit labour costs. The US dollar index is currently trading at 102.885
Last month the EU had moved to ban imports of Russian coal and it is now about to implement restrictions on oil purchases, paving the way for a probable ban on natural gas imports. Yesterday, European Commission President, Ursula von der Leyen announced new sanctions against the Kremlin which include a 6-month phase out plan targeting Russian crude imports. She added that those measures won’t be easy to implement but EU member states would have to cooperate. She did not give any detail on exemptions but the proposal reportedly includes some flexibility which would allow Hungary and Slovakia longer periods of time in order to phase out Russian oil. Ursula von der Leyen also stated that the EU needs to maximise pressure on Russia while minimising collateral damage. But the Europeans seem to forget that fuel is also needed for cooling in summer, apart from heating during the winter season. Indian Prime Minister Modi met with French counterpart Macron in the context of an official visit to France yesterday. The strengthening of bilateral ties were discussed and both heads of state issued a joint statement to end the war in Ukraine. Today, the economic calendar features monthly French industrial production and 10-year French bond auction. The fibre is currently trading at 1.0586.
The Monetary Policy Committee of the Bank of England is expected to raise key interest rates by 25 basis points to 1% today in order to curb the 30-year high, 7.0 % inflation level. The cable is currently trading at 1.2526 and should rebound in the course of the day.