Markets Report - 13 March 2023

A daily breakdown of the markets for the 13th March 2023, provided to you by Sterlex.

🇪🇺💶Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB past the March meeting, when the bank has already anticipated another 50 bps rate hike. That said, the Euro pair advances 0.2% on a day to 1.0660 as it prints a three-day winning streak at the highest levels in three weeks with eyes on Thursday’s European Central Bank (ECB) monetary policy meeting, as well as Tuesday’s US Consumer Price Index (CPI).

Key events in the euro area this week: Eurogroup Meeting (Monday) – ECOFIN Meeting (Tuesday) – EMU Industrial Production (Wednesday) – ECB Interest Rate decision, ECB Lagarde (Thursday) – EMU Final Inflation Rate (Friday). Risks of inflation becoming entrenched. EUR/USD rise to the highest levels in three weeks as an upbeat risk profile favors bulls amid early Monday. Continuation of the ECB hiking cycle amidst dwindling bets for a recession in the region and still elevated inflation.

🇬🇧💷In a joint statement from the UK Treasury and the Bank of England (BOE), the UK Finance Minister, Jeremy Hunt, said on Monday that the “deposits will be protected, with no taxpayer support.” The UK authorities confirmed that HSBC bank agreed to rescue the Silicon Valley Bank’s (SVB) UK arm. "No other UK banks are directly materially affected by these actions.". The market still expects the Bank of England to push ahead with a 25 bps hike on 23 March. This still may be at risk of being priced out, given the BoE was not far away from a pause anyway. Also, Britain's economy was shown to have grown by more than expected in January, further allaying fears of a recession. It should be noted that the multiple catalysts including the UK jobs report and the US inflation data highlight this week an important one for the Cable traders. GBP/USD takes the bids to refresh a three-week high near 1.2125-30 during early Monday morning in Europe. A Reuters poll of economists had pointed to growth of 0.1%. The Office for National Statistics (ONS) said Britain's economy expanded 0.3% month-on-month, after a drop of 0.5% in December.

🇺🇸 🏦The US Dollar started the new week under heavy selling pressure with markets reassessing the next Federal Reserve policy action following the collapse of Silicon Valley Bank (SVB). With start-ups starting to draw down funds held by SVB due to higher borrowing costs, the bank faced a capital crisis and announced that it will be selling more than $2 billion worth of new shares to solve the liquidity crunch on Wednesday. Regulators assured customers that they will have access to all their deposits starting Monday. This decision caused companies and depositors to rush to withdraw their money from the bank, leading to the collapse of SVB by Friday.

Over the weekend, the Federal Deposit Insurance Corporation (FDIC) took control of the New York-based Signature Bank. The benchmark 10-year US Treasury bond yield is down 0.7% below 3.7% following Friday's 6% decline and the US Dollar Index stays deep in negative territory at around 104.00 early Monday. Meanwhile, US authorities launched emergency measures on Sunday to avoid collateral damage in the banking system. There will not be any high-tier macroeconomic data releases featured in the economic calendar on Monday.

As the Fed raised interest rates, the value of long-term bonds that were collected by SVB during the ultra-low Fed interest rate regime continued to decline. Moreover, the Fed introduced a new facility that will provide loans up to one-year for institutions that were impacted by the failure of SVB.