Markets Report - 25 April 2022

A daily breakdown of the markets for the 25th April 2022, provided to you by Sterlex.

🇪🇺💶The lack of bullish sentiment on the euro shows the plentiful downside risks to the euro area economy as the war in Ukraine doesn’t look to ease and is set to weigh on growth. Looking at today’s data, there is little on the calendar outside of German Ifo and a speech by ECB’s Fabio Panetta at 18:00 BST to shake markets. This is especially the case as there is an unusual delay between the second round and the legislative election this time around, which increases the probability of the latter being used as a protest vote against President Macron. The extent hereof and the European Central Bank’s response to this will continue to drive the euro going forward. In line with our expectations, EUR traders are ignorant of yesterday’s second round in the French elections: the possibility of a victory by far-right Marine Le Pen had not been priced into EURUSD as Macron’s chance of winning was high, while a relief rally also didn’t occur as political risks remain elevated until the legislative elections in June. This would force the Macron to compromise on his domestic agenda.

🇬🇧💷🌍Friday’s poor retail sales and PMI data aren’t of much help to the pound either, however, the data also didn’t lead to a significant repricing of Bank of England tightening expectations. Markets continue to price in six more 25bp rate hikes by the end of the year despite broader downgrades in UK growth expectations over the last months, as in comparison, the UK economy is more resilient to the fallout from the war than other European countries. GBPUSD is extending its slide this morning to slide fall further to levels last seen in September 2020, as the risk-off market mood and hawkish Fed expectations are propping up the US dollar. Still, risks of a dovish repricing in the BoE rate remain ahead of next week’s Bank of England rate decision.

🇺🇸 🏦The U.S. There will be no FOMC speeches ahead of next week’s Fed rate. The calendar for the US is light in the first half of the week, with US durable goods on Tuesday being the main release of note. Risk aversion has largely dominated price action since the Asian session, largely driven by increasing numbers of Covid-19 cases in parts of China, which is increasing concerns around wider lockdowns. announced new military aid for Ukraine and a renewed diplomatic push as Secretary of State Antony Blinken and Defence Secretary Lloyd Austin finished a visit to Kyiv. Later in the week, US PCE, personal income, and spending data will be eyed. This led to a broader rally in the US dollar, while sentiment was weak already as the war in Ukraine doesn’t look to ease. Additionally, US and EU officials are in talks over steps the EU could take to restrict crude oil imports from Russia, including a ban, a price cap, and a payment mechanism to withhold revenue that Russia has generated since the start of the war.