JASPER’S MARKET SQUAWK 22-03-2023

Yellen Reassurances Propel Markets

Shares in US regional banks continued to rise for a second session this week, leading to a general return of risk appetite after US Treasure Secretary Jannet Yellen said that further steps to protect bank depositors might be taken to contain the risk of contagion.

Chart: EUR/USD

Key Factors for Today

• Yellen assures more action to contain the risk of banking contagion
• 2-year yield records biggest single 1-day gain since 2009
• EUR/USD jumps higher as ECB members cala l for focus on liquidity
• Pound slides ahead of BOE on Windsor Framework doubts
• Russia and China announce an increased collaboration

Gold Down 2% as Risk Rebounds Ahead of FOMC

Risk sentiment soared again on Tuesday, buoyed partially by US Treasury Secretary Janet Yellen’s reassurances and expectations around the Fed’s 25bps hike. Yields rose with the two-year breaking 4.15%, the single one-day gain since 2009, as markets consolidated around the modest hike later in the day. Gold lost some 2% to $1940 per ounce by the closing bell, bringing $1920 per ounce back in focus.

EUR/USD Records 4-Day Streak Despite Mixed Data

The German ZEW survey came in disappointing, with the current situation and expectations below forecasts. On the other hand, Construction Output increased by 3.9% compared to a contraction of 2.3% in December. ECB Supervisory Board head Andrea Enria said that he saw a risk that banks might be caught off guard and that higher interest rates mean banks should focus more on liquidity. EUR/USD jumped to $1.0789 on Tuesday but ended 0.45% higher for the day, 25 pips below its daily peak. $1.0901 is the next resistance above $1.08, whereas $1.0718 support.

UK Focused on Windsor Ahead of BOE Meeting, Cable Down

ERG Chairman Mark Francois said that the key parts of the Windsor Framework make the deal “practically useless” and will meet on Wednesday to decide how to vote on the potential bill. A spokesperson for No. 10 said the agreement would only be modified after being presented to Parliament. Meanwhile, Chancellor Jeremy Hunt affirmed that banks are resilient ahead of BOE’s meeting tomorrow. The pound lost some 0.50% to $1.2215 after failing to reclaim $1.23, opening the door to $1.21 unless bulls succeed in an attempt at $1.2374.

Russia and China Deepen Ties

In a joint statement following a meeting of Chinese President Xi and Russian President Putin, the two countries said they would increase collaboration on armed forces. Still, they stressed it was not a military or political alliance. Putin said he would increase LNG supplies to China. Natural gas was up 4.50% to 2.43 per cubic foot, whereas WTI recorded a second daily gain shy of $70 per barrel. Bulls might aim for $72.30 per barrel unless they lose $67.80.

On The Docket

• UK CPI inflation
• ECB Lagarde speech
• UK CHI industrial trends
• New housing price index
• EIA crude stock change
• BOC summary of deliberations
• Fed interest rate decision and presser

Fx 1-Day Relative Performance (USD)

• Aussie and kiwi 0.47% and 0.30% higher
• Pound and yen are up by 0.15% and 0.10%
• Loonie and swissy are up and down 0.08%
• Euro unchanged
• Gold and silver 0.24% and 0.69% up
• Crude and brent 0.90% lower
• Natural gas is down by 2.78%