This Week In Markets 28th March - 1st April (Ukraine Update, Biden Approval Rating, NFP Preview)

Okay, hope you're doing well. It is Sunday, 27th of March, so a quick run-through of the major headlines in the weekend and the outlook for the week ahead. So updates of course on, on Ukraine, as you can see here, as Zelensky just made a comment a short while ago, which I'll go into in more detail in a moment. But we've also got for the week ahead Eurozone inflation, we've got a very interesting potential for an OPEC meeting given the fact of the withdrawal of Russian crude to the global market given all the sanctioning and then geopolitical developments that have been going on. Then of course bookended this week with non-farm payrolls and looking for that to be a pretty decent number again and likely to cement then a 50 basis point rate hike at the next meeting from the Fed in May. But let's get straight to it and jump in on the Ukrainian side of things. Where are we at this present point in time? And the Russian— excuse me, the Ukrainian President Zelensky said his country is prepared to discuss discuss adopting a neutral status as part of a peace deal with Russia, though an agreement would need to be guaranteed by third parties and be put to a referendum, is what he's just said a short while ago. Now, this comes in the context of the fact that the next face-to-face round of talks between Ukraine and Russia, being mediated in Turkey, are said to be taking place between Monday through Wednesday of this week. However, the chief of Russian negotiations has said that actually that's going to be on just Tuesday and Wednesday. This kind of minute details, but nonetheless, first half the week is going to be particularly interesting to monitor developments on this side. As far as the actual invasion is concerned in itself, uh, the offensive in Ukraine has stalled, the Ukrainian army has said, after Russian units being pulled out of northern Ukraine back into Belarus in order to replenish personnel and supplies is what their intelligence is indicating. Tactically, it still appears that Russian forces may attempt to establish a land link from Russian territory to occupied Crimea via Donbas and Ukraine Sea of Azov coast. So again, trying to instill this kind of defensive geography line on the border on the eastern side, connecting that of what was annexed previously in 2014. So Mariupol continues to be a very point of contention to watch this week. Other things to be aware of then is this: the French president Emmanuel Macron has been out this weekend and warned against verbal escalation on the war in Ukraine and his comments coming particularly after that of President Joe Biden, who described the leader of Russia, Putin, as a butcher and went a little bit further in his unscripted comments saying that Putin should not be allowed to remain in power. And what this has basically led to then is a bit of a walking back of specifically what that was supposed to mean from the US administration. The US Secretary of State, Antony Blinken, denied then shortly after the US has any plans to bring about a regime change in Russia. But the type of kind of comments that we're seeing with Biden probably would have caught not just Macron, but a lot of other European officials a little bit by surprise, given he was just in dialogue with them in Europe in the last couple of days. And it continues to bring about the kind of risk factor that that predominantly brings for Western Europe rather than over in North America. But Biden's assertiveness, probably to do with the fact that his approval ratings continue to deteriorate— in fact, Biden's overall approval has dipped to 40%. The lowest mark of his presidency from 43% in January, according to a latest NBC News poll. Unsurprisingly, the kind of narratives have shifted. It's gone away from things like COVID and even foreign affairs has picked up with a little bit of the electorate. But the economy is what's super important at the moment. Of course, consumers are rapidly losing confidence amid rampant inflation. That's really hurting Biden at this present point in time. Other things then to be aware of from the weekend news over in China. I continue to watch that quite closely. I've mentioned this in the last couple of briefings, but of, as we all know, COVID cases are at their worst they've been since the initial outbreak in Wuhan at the very beginning of the entire pandemic back in 2020. And Shanghai will lock down areas east of the Huangpu River which includes its financial district and industrial parks, for 4 days starting from Monday. Then the lockdown will start in the city's west for another 4 days. So they're kind of sectioning off the city piece by piece. Shanghai reported just under 3,000 new infections on Saturday. That's a jump of 18% from just a day earlier, and it's now overtaken Jilin as the nation's biggest COVID hotspot. And obviously one of the world's most densely populated cities. So yeah, we continue to watch that very closely, just given the, the ramifications and any supply chain shocks that could have in an already very precarious inflation situation that the globe is in at this present point in time. Other things to be aware of, I don't find this surprising at all, but I guess as an update, the US have said that Iran nuclear deal is not imminent. Amid a deadlock. I've always found it a little bit hard, and you'll probably recognize the degree of consistency that I've always been very bearish on the success of these talks actually coming to fruition. And again, there's just so many layers to this at the moment, particularly with the Russian involvement. I definitely don't see a deal happening anytime soon. So again, doesn't come as too much of a surprise. Um, basically what's happened is Iran may not happen, this deal, following recent requests from Tehran, including that Washington removes Islamic Revolutionary Guard from its list of terrorist organizations. And that demand's never going to be met by the Americans. So at the moment, they're at, they're at a bit of a sticking point. In terms of the week ahead, as I mentioned, there's plenty to get your teeth into. UK Chancellor Rishi Sunak is going to testify to lawmakers on Monday, and this obviously comes after his spring statement last week. And for anyone new to markets and how interwoven politics is. I mean, you've only got to look a couple of months ago and Rishi was kind of being labeled as the prime minister-in-waiting, and now a complete U-turn just given some of the things that are happening. And obviously now looking to almost pay back what was given during the pandemic period and what's happening at the moment with consumers, just general kind of quality of life with the cost of living deteriorating by the day amid the inflation situation has really heaped the pressure on the chancellor, who's definitely looked at for the economy as a degree of success. And just goes to show really that when it, when they, when it comes to the game of politics, if you can just stay in it for long enough, generally the narrative changes. And Boris seems to be, at least at this point in time, a radically different place as we've only got about 5 or 6 weeks until we get those May local elections, which a lot of people were talking about at the beginning of the year. As a potential then sea change of leadership where Sunak might come in after the Tory situation there. But yeah, things have moved on quite, quite rapidly. Also, Bank of England Andrew— Bank of England Governor Andrew Bailey is speaking as well to kick off the week on Monday. And just want to have a quick look here. Obviously, the UK is bracing, as I've said, for its highest inflation rate in 4 decades at the moment. So of course, whenever the governor is speaking, it'll be particularly interesting to keep an eye on that. The other thing for the week is here, and that is the fact that March inflation data from Europe's Big Four economies. So as you can see here, Germany, France, Italy, and Spain, they're all going to be coming out with the latest inflation readings on Wednesday and Thursday, and then we'll get the overall eurozone reading to follow thereafter, which the euro area is expected to clock in at 6.7%. And of course, that is a record for the, um, record in the history of the single currency. The ECB does not expect the war in Ukraine Ukraine though to push the eurozone into stagflation, which of course some of the curve movement that we've seen indicative of what perhaps could happen with the likes of the US and the potential probability of recession increasing given the rapid nature of rate rises to be front-run in the near term. But eurozone, the Ukraine situation, the ECB is expecting it not to push the eurozone into stagflation even if it does push up inflation short-term due to higher energy prices and push down growth. That was according to the ECB president Christine Lagarde, who spoke on Saturday. Otherwise, other things that I am quite keenly watching are an OPEC meeting on Thursday. And the reason why this one perhaps could be quite interesting— remember last month they concluded their meeting in just 13 minutes. So despite lots of calls to bring on extra crude supply, just given the potential supply shock that we might see coming from the likes of Russia, which is really promoted such a strong move in crude oil of late. That will be— continue to be a central point really to these discussions, because within that interim period, the G7 leaders called on the, the producer group to boost output to compensate for the disruption generated by the Russian invasion of Ukraine. And so, so far, the OPEC+ alliance, which does of course include Russia, and the dominant players being that Saudi Arabia as well, have just stuck to their plan so far, that gradual return of 400,000 barrels per day of crude. But again, politically, the pressure is increased given that it's not just been the US calling for more crude, but the G7 themselves have got involved now. So yeah, we'll wait and see. Then going back to the calendar, as you can see, then we start to see ADP National Employment we get on Wednesday. You've also got Chicago PMI, the weekly jobless claims on Thursday, and that leads us in then to US nonfarm payrolls coming on Friday. Now, in terms of payrolls, what are we expecting there? US employers probably added close to around 500,000 jobs and average hourly earnings advanced 5.5% from a year earlier. So according to analysts surveyed by Bloomberg. So yeah, how big a number is that? I, I don't think it's going to be a particular big surprise, but of course it's going to factor into the market's pricing and expectations of how aggressive the Fed is going to be, given the increasing calls that we've had, not just for 50 basis points in the May meeting— you can see this now priced at a 50 or 72.7% probability for the May meeting— but then for a subsequent back-to-back double 50 in May and June, which is what we've heard from the likes of Goldman's And we've seen a lot of the rhetoric coming out of Fed officials, which has kind of been ramping up those expectations. Again, market pricing now would be leaning toward that double tap of 50 in the next two meetings. So the, the payroll report will likely feed into that somewhat. And then the other thing that's going to be quite interesting on Thursday, just to jump back a day before payrolls, you get the February income spending, which is forecast to show that personal consumption Expenditure Price Index, or PCE Price Index, accelerated to 6.4% annual advance. Again, these are kind of the preferred measures that the Fed likes to look at when they're making their policy decisions around the aspect of inflation, which of course is critical because at the moment those levels are more than triple the Fed's inflation goal, of course. And then finally, to wrap up the week, going back to Friday, off the kind of data docket, you've got Chinese and EU leaders are going to be meeting via video link. This was a meeting that had already in the pipeline for many weeks prior to even the Russian invasion of Ukraine happened. But just given that geopolitical event, obviously that's going to likely dominate those conversations. Now it's going to be happening on Friday. But that is it. Any questions at all, feel free to leave a comment below. You can get the full notes to this on my Twitter account. You can see here. Don't forget to sign up for the Daily Market Maker newsletter to get the updates from me and the rest of the team at the end of every European close throughout the entire week. But have a good one and I'll speak to you soon. Take care.