Easing Inflation Keeps Central Banks Raising Rates

Powell confirmed on Tuesday that there is a possibility of another interest-rate rise in order to contain inflation as soon as this year. Stock exchanges in Europe move higher as a result of US market momentum sparked by Fed Chair Powell's comments which initially resulted in choppy trading for risk appetite. The Reserve Bank of India (RBI) raised interest rates by 25 basis points, as expected, but the vote was not unanimous at 4-2; Core inflation remained stable. The Iceland Central Bank raised rates aby 50 basis points in order to continue tightening the monetary policy. As part of Equinor's Q4 results, Equinor raised its buyback commitment; Maersk, the shipping giant, sees significant inventory adjustments and expects ocean business to be a lot worse in the second half of the year as a result. The Asian market closed mixed, with the KOSPI outperforming at 1.3%. The EU indices are +0.6-0.8% higher. US futures are -0.3%. Gold +0.6%, DXY -0.4%; Commodity: Brent +1.2%, WTI +1.5%, TTF -4.7%; Crypto: BTC +0.7%, ETH +1.7%.

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Asia

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- The Reserve Bank of India (RBI) has raised the Repurchase Rate by 25bps to 6.50% (as expected) and has remained focused on withdrawing accommodation from the market.

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- The Prime Minister of Japan, Kishida, reiterated the Governor of the BOJ's decision in regard to the basic economic policy of the country and the very strong market during his remarks.

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Ukraine Conflict

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- The German government has approved the transfer of 178 Leopard-1 tanks to Ukraine.

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Europe

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- Inflation momentum remains quite elevated according to Trade Algo. Inflation still wasn't clear. Council reaffirmed its intention to hike rates by 50 basis points in March, as it had previously indicated.

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- NIESR has raised UK inflation forecasts for 2023 and 2024 but cut GDP forecasts for 2023 and 2024.

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Americas

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- Fed Chair Powell: We have begun the process of disinflationary pressures, but we are still at the very beginning of this process.

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- Biden reiterated the US goal of the competition with China rather than conflict in his State of the Union Address. He asked Congress to raise the debt ceiling so that the US would not default over the debt limit.

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- Gov Macklem of the BOC reiterated his position that any rate pause was conditional on the outlook evolving as anticipated and that he was prepared to hike again if CPI did not reduce as expected.

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Energy

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- API Crude Oil Inventories decreased by 2.2 million from +6.3 million last week.

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Equities

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- A number of indices rose today, including the Stoxx 600% at #, the FTSE +0.66% at 7,916.75, the DAX +0.79% at 15,442.45, and the CAC-40 +0.49% at 7,167.24. The IBEX-35 gained 0.76 percent at 9,241.60. Meanwhile, the FTSE MIB gained 0.61% at 27,284.00, the SMI increased by 0.69 percent at 11,311.

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Aspects of the market: European indices opened higher across the board at the beginning of the session and stayed upbeat throughout the entire session; Despite Slovenia being closed for a holiday, all sectors begin the day positively; materials and technology have been among the sectors that have outperformed others; the industrial sector, as well as the financial sector, have been lagging; disappointing results in the oil and gas sector from TotalEnergies are impacting the subsectors; reportedly CDP planning a counter bid for Telecom Italia network; Disney, Metro, Uber, and Under Armour are expected to report earnings during the upcoming US session.

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- Among consumer discretionary stocks, Pandora [PNDORA.DK] gains 7.5% (reports Q4 - DKK2.4B buyback announced), Scout24 [G24.DE] loses 1.0% (analyst action - downgrade at UBS), and HelloFresh [HFG.DE] increases 2.0% (analyst action - downgrade at Credit Suisse).

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- E.ON [EOAN.DE], +2.0% (preliminary estimates for FY22 - post-close).

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- Energy: TotalEnergies [TTE.FR] -3.0% (reports Q4 - beats expectations, buys back $2B, raises dividend), Equinor [EQNR.NO] +6.5% (reports Q4 - raises dividend, increases buyback).

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- On the financial front, Societe Generale [GLE.FR] is down 1.0% on earnings (earnings), and ABN AMRO [ABN.NL] is up 5.5% on buying backs (reports Q4 - €500M is announced).

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- Healthcare: Synlab [SYAB.DE] -3.0% ( a number of analyst cuts).

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- Industrials: Volkswagen [VOW3.DE] -1.5% (prelim earnings), Maersk [MAERSKB.DK] +2.0% (Q4 results miss expectations, weak FY23 guidance).

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- Adyen [ADYEN.NL] is down by 12.5% for H2 (reports H2 results - misses estimates / appoints a co-CEO).

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- Materials: Akzo Nobel [AKZA.NL] has gained 6.0% in the last six months (earnings).

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Speakers

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- The ECB maintained its capital requirements for 2023 based on the results of its SREP for 2022 as the banking sector remained resilient throughout the year.

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- Enria (CEO of the SSM) says bank payouts are compatible with capital plans at the ECB.

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- In its policy statement published by the Iceland Central Bank (Sedibanki), the Bank said that in order to reach the inflation target within a reasonable time frame, it would be necessary to tighten further at meetings in the near future.

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- The Supreme Court of the United Kingdom has rejected a challenge to the Northern Ireland Protocol's legality brought by Unionist MPs.

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- RBI Governor Das made it clear in his post-rate decision press conference that he was not going to provide any forward guidance on rates. Despite the fact that the inflation rate was showing signs of moderation, we had seen the worst of it behind us.

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- The Iranian Deputy Minister stated that its objective is to ensure that there will be enough oil supply in the world by depoliticizing the oil market. In the second half of the year, oil prices rose to $100 per barrel. It is likely that OPEC+ will continue its current policy when it meets again at the end of the year.

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- Indian Oil Minister Puri said that he had been invited to the next meeting of OPEC+ in the near future.

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Currencies/fixed income

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- It was noted that the USD was weaker during the session, despite Federal Reserve Chairman Powell's decision not to dampen down market optimism on the ooser policy front by using an opportunity to do so. It was stated that Powell saw inflation as a challenge that would need to be fought for a long time, and that if economic conditions remained strong, rates might need to move higher than expected. It is worth noting that the greenback retraced as participants noted that Powell reiterated he believed we were experiencing a process of "disinflation".

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- The EUR/USD pair has been drifting higher during the session, with a test above 1.0750 being recorded. There was a reassertion of the ECB's intentions regarding a 50bps hike at the next meeting of the ECB in March at its recent meeting.

GBP/USD is back at 1.21. Investors noted that the UK Supreme Court could rule on the lawfulness of Northern Ireland (reminder: Protocol created a trade border between Northern Ireland and the rest of the UK).

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- USD/JPY is below the 131 level as markets await word on who would be proposed to replace Kuroda as the next Governor of the Bank of Japan in order to stabilize the market.