Weekly Trading Update 18.03.2022

Week ahead of March 21-25

Risk appetite appears to be returning following weeks of heightened geopolitical risk, but with the Fed having joined the ranks of central banks raising rates, how long will the upside last?

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Week in review

Crude prices dropped through the week as it appeared less likely Europe would join in an energy boycott of Russia. WTI has found support at its 50-day average near $95/bbl in what seems to be a relief rally towards $110/bbl. Russia managed to make its first post-war debt payment a day late but avoided a default.

Attention turned to central banks, as both the BOE and Fed hiked as expected. However, the BOE's divided vote gave a less hawkish impression than was initially expected. USDJPY broke to 6-year highs at 119.00, whereas cable formed a range between $1.31 and $1.32. 

Shares in Asia were volatile over regulatory issues of Chinese companies listing in the US. On top of that, the spread of covid in China has increased concerns over supply chain problems as more regions were locked down to control the spread. 

The week ahead

After the policy meetings from the central banks last week, the theme for next week is likely going to be digesting the new data from major economies.

Ukraine-Russia deal

The geopolitical situation is expected to fade from focus, as talks between Ukraine and Russia focus more on details of a potential agreement within the 15-point plan framework first reported by the FT. Negotiations are expected to last the week, with no timeframe yet on any conclusion, as the key issue over Ukraine's territory remains unresolved. 

The S&P 500 might come under renewed pressure as it reached its 50-day average at 4420. 4330 is near-term support.

Global PMIs during war

One of the likely drivers of the markets next week is the release of European Flash PMI figures, the first to include the effects of the Ukraine conflict. Meanwhile, covid cases have increased in Europe and could come back into the news as Germany recorded record case numbers. 

EUR/USD is compressed below $1.112 and could slide towards $1.10 if not lower. 

Sunak’s ‘Spring’ Statement

Besides preliminary PMIs coming up, the UK also reports a series of other important data points. These include February inflation figures, retail sales and consumer confidence data. 

Additionally, Chancellor Rishi Sunak will be in the Commons to issue the Spring Statement on Wednesday, after the "preview" on Sunday. The focus is likely to be on the consequences of inflation and potential Government plans to alleviate some of the effects on households. The FTSE might react to more big spending plans, but seems restricted by its 50-DMA at 7430 and 200-DMA at 7230.

Other events

The SNB also meets this week but is not expected to be a major event since the consensus is for policy to remain unchanged. 

EURCHF has had a big rally off parity, which could quickly fade were the SNB to make any hawkish surprise. USDCHF is experiencing a short-term correction to 0.93, which might change its short-term bias up towards 0.94.

Biden's appointment to the Supreme Court is expected to take up the political bandwidth. Carnival, Next and Kingfisher report results in the UK. Nike, Tencent, Adobe and a number of the big SOE’s from China report quarterly earnings.