Since the outbreak of the war in Ukraine, the publication of the PMI for March in the Eurozone is the first important data point for the outlook for the economy. Due to the outbreak of the war, prices for important raw materials such as industrial metals, energy and food have risen sharply. In addition, there is the threat of renewed problems in global supply chains after the war disrupted the land route through Russia and Ukraine for the transport of goods between the EU and China. Renewed lockdowns in China to control an outbreak of Covid-19 pose an additional risk to global supply chains in the short term. Against this backdrop, we expect a significant decline in sentiment in March, especially in the manufacturing sector. Among service providers, sentiment could stabilize at a high level, given the end of Covid related restriction measures in many countries. The outlook for global commodity prices as well as short-term supply issues should ease somewhat in the event of an early cessation of hostilities. This would help reduce the short-term downside risks to the Eurozone economic outlook. However, we see two main risk factors that could pose longer-term risks to the economy and inflation. On one hand, the war, like the pandemic before it, has exposed the fragility of global supply chains. Therefore, the trend toward 'deglobalization' of supply chains to increase regional supply security could be exacerbated or accelerated by the war. However, the trend toward globalization has probably made a not insignificant contribution to the gradual decline in global inflation dynamics since the early 2000s. It is possible that a partial reversal of the trend could lead to higher upward pressures in the future, especially for prices of goods. In addition, Russia is losing access to essential technologies from the US and the EU as a result of the economic sanctions. Due to this loss, Russia's production potential for key raw materials is expected to gradually decline. If Russia's exports of key commodities decline in the long term, this would be a problem for the global economy and could lead to upward pressure on commodity prices until alternatives are found. US key interest rates to rise faster The economic impact of the war in Ukraine has made the outlook for the economy considerably harder to assess. What damage will the high energy and commodity prices do and when will the tension ease? How will the supply shortfalls, whether directly from the war or from the sanctions, affect growth and prices? The impact will certainly also be felt by the US economy. This week, Fed Chairman Powell confirmed that the risks were difficult to assess. At the same time, however, it became clear that the FOMC, the body that decides on monetary policy, sees above all a worsening of the inflation trend. Even before the war, US inflation rates had risen. Overall, this led to a sharp increase in the FOMC members' interest rate forecasts for the next few years compared to December. According to Powell, price pressures will increase for the time being. He said that the inflation peak originally expected for March will be pushed back further. We are significantly raising our forecasts for US policy rates this year, as rate hikes will come sooner than we had expected. We were already at the lower range of possible developments with our interest rate expectations. However, the US data in recent weeks, the outbreak of war in Ukraine and the latest indications from the FOMC have made our original scenario very unlikely. We now expect a 0.25% rate hike at each of the upcoming FOMC meetings later this year, and as much as 0.5% in May. In contrast, we continue to expect relatively little movement in 10Y US Treasury yields. We see good reasons why these yields should remain relatively low, compared with the FOMC members' interest rate forecasts of 2.8% at the end of 2023, for example. We believe that the burdens the US economy will continue to face due to the factors mentioned above (energy and commodity prices, supply bottlenecks, general uncertainty) will lead to a slowdown. The market should already be pricing in these risks accordingly. Furthermore, the market assumes that inflation will eventually be brought under control. The faster rate hikes mean a somewhat slower weakening of the dollar for our EURUSD forecast. Download The Full Week Ahead

Summary United States: Significant Monetary Policy Tightening Ahead In a full week of economic data, Wednesday's FOMC meeting took center stage. FOMC officials lifted the target range for the federal funds rate by 25 bps. Meanwhile, data on retail sales, industrial production and housing underscored a similar backdrop across the economy—price pressure remains hot and supply is still hard to come by. Next week: New Home Sales (Tues), Durable Goods (Wed) International: G10 and EM Central Banks Continue Hiking International central banks were quite active this week. In the G10, the Bank of England (BoE) opted to lift interest rates another 25 bps and take its main policy rate to 0.75%. While the decision to raise rates was largely expected, the details surrounding the decision were a bit of a surprise and were interpreted as relatively dovish. In the emerging markets, the Brazilian Central Bank opted to lift the Selic Rate 100 bps and take the main policy rate to 11.75%. Next week: South Africa CPI (Wed), Eurozone PMIs (Thurs), Central Bank of Mexico (Thurs) Interest Rate Watch: FOMC Sends a Hawkish Signal As was widely expected, the Federal Open Market Committee (FOMC) decided to raise rates by 25 bps at its meeting on March 16. But the marked upward shift in the so-called "dot plot" indicates that most committee members now believe that a more aggressive pace of monetary tightening will be appropriate this year than they did just a few months ago. Topic of the Week: Russia's Invasion of Ukraine Highlights Lagging Domestic Oil Production One of the economic consequences of Russia's invasion of Ukraine has been higher oil prices. Domestic crude oil production in 2021 was roughly 1.0% below the 11.3 million barrels per day averaged in 2020 and 9.0% below the 12.3 million barrels per day average registered in 2019 before the worldwide dropoff in global energy demand. Download the full report

The upcoming week will quieten down a bit after what was a busy time for central banks and geopolitical events. But there’s still plenty of activity ahead as the latest flash PMI readings are due and the Swiss National Bank will keep the monetary policy theme running, not to mention how the war in Ukraine will unfold amid slow progress in the negotiations for a ceasefire.

The Federal Deposit Insurance Corporation in the final 12 CFR Parts 303 and 337 Rules effective April 1 2021 changed the concept of the national interest rate rate cap and the national interest rate. "The FDIC views the "national rate" as  as the average of rates paid by all insured depository institutions and credit unions for which data is available, with rates weighted by each institution’s share of domestic deposits."  "The “national rate cap” is calculated as the higher of: (1) the national rate plus 75 basis points; or (2) 120 percent of the current yield on similar maturity U.S. Treasury obligations plus 75 basis points. The national rate cap for non-maturity deposits is the higher of the national rate plus 75 basis points or the federal funds rate plus 75 basis points." The national rate speculatively is the Money Market interest rate at 0.08 which matches the previous  effective Fed Funds rate before the Fed raised. Add 75 basis points and the money market rate is capped at 0.83. The new effective funds rate should be 0.20 or capped at 0.95. The old savings rate at 0.06 is capped at 0.81 while the new savings rate should be 0.18 and capped at 0.93. Savers for the first time in 15 years contain a shot to save and earn from deposits. Checking accounts and 1 month Certificate of Deposits  at 0.03 are both capped at 0.79 for checking and 0.83 for CD's. The new rate by speculation is 0.15 and capped at 0.89 and 0.90. CD's from 3 month to 60 months or 5 years are factored and pay interest from current 0.06 to 0.28 and capped from 1.01 to 2.69. The Treasury equivalent factors as 0.22 to 1.62. THE CD question is to holding periods for either CD's or Treasury yields in order to earn intertest. The FDIC as regulator to banks instituted the new 51 page rules along with historical background to allow banks competitiveness to less well capitalized institutions and to the fast moving electronic market to move funds within seconds. JP Morgan is restricted to offer higher rates than a less well capitalized institution to drive the institution into bankruptcy. All bank Deposit rates operate under the same rules. Speculation, the Fed at 25 basis points to each raise adheres to the principles to the National Average and National Rate cap. Bullard may vote for a 50 point hike but it won't ever happen at one meeting. We're restricted to 25 point raises from today to eternity or when the Fed had enough. The UK banking system works as closely and competively as the FDIC to interest payouts. As to Commercial Paper rates and most at 270 day holding periods is not addressed yet a spotty record to daily reporting existed over last weeks. The imperative to non Financial Commercial paper to address off shore rates is to use implied rates from Libor while Commercial Paper Financial for US Money markets holds near the effective Fed funds rate. Next week EUR/USD at near 1.1100's is 1/2 way from 1.0900 bottoms to 1.1300's target. A close today in the vicinity of 1.1014 then bodes well for longs next week. We;re long anyway but a more perfect entry is the goal. EUR/NZD from the 1.6500 target reported 2 weeks ago traded to 1.6238 highs from 1.5900 lows. Currently oversold and long for next week. EUR/AUD sits 22 pips below its Sunday open at current 1.4978. EUR/CAD at 1.3957 trades near its Sunday open at 1.3907. Long for next week. USD/JPY and JPY cross pairs USD/JPY and EUR/JPY are driven by shortest term averages from 5 to 20 to 50 day averages. Shortest term averages are the only remaining averages as remainder averages dated to 1999 are deeply overbought. USD/JPY at 119.00's and 120's trade at far extremes to short averages. USD/JPY target remains 115.00's,  114.00's then 113.00's and a short only strategy. Note the 600 number from 119 to 113.00's. To travel off kilter. Note  current longer term targets sit at 500 to 600 pips and this once every 2 year phenonemon exists at present and a fabulous opportunity to bank many pips. The magic numbers for overall currency trading are 2, 3, 4, 5, 6 and rarely 8. Without detail, trust the analysis from deep research to prior past periods over years. Because currency prices work on Futures IMM over 3 months, targets will achieve anywhere from this day to at most 3 months. Normally targets achieve from 1 to 2 months and not normal for 3 months. The overall period to great and easy trades as we are in presently, always hits in the February to May or March to June time frame. And once every 2 years without fail. Again the number 2 for 2...

Positive signals from Russia-Ukraine talks boosted market sentiment this week. Media reports that Ukrainian and Russian negotiators are discussing a 15-point draft peace deal raised early optimism that the two sides could be approaching a diplomatic solution to the ongoing war in Ukraine. In our Research Russia-Ukraine – Updated scenarios and implications for commodity markets, March 9, we argue that the two sides are likely to eventually agree on a ceasefire/truce but that will require some painful concessions from the Ukrainian side. Despite a potential truce, some level of conflict/unrest is likely to remain but on a baseline we do not expect an escalation of the conflict outside Ukraine. In our base case of a frozen conflict in Ukraine, we think the global economy will see weaker growth but escape a recession (see Big Picture – Headwinds to the global economy from Ukraine and Fed tightening, March 17). In a downside scenario, where there is an escalation of the war beyond the borders of Ukraine, the risk of recession in Europe increases significantly. With rising inflation, euro area consumers will see the biggest real income erosion in decades this year, and we revise down our 2022 euro area GDP forecast to 2.5%. The US economy is more insulated from the Ukraine war repercussions, but strong stagflation dynamics will keep the pressure on Fed to tighten financial conditions. Overall, we now expect US GDP growth of 2.8% this year. We have also postponed our expectation of a recovery in China and now look for GDP growth of only 4.7% this year. As widely expected, Fed launched its hiking cycle on Wednesday by raising the Fed funds target range by 25 bps to 0.25-0.50%. Despite signalling six further rate hikes for this year, we still think Fed is behind the curve, and keep our call unchanged, expecting a total of 175bp hikes this year (25bp at each meeting but 50bp in June). We still expect an announcement on QT in May. Risk markets recovered this week on the back of rising optimism around Russia- Ukraine talks. Equity markets gained in Europe and the US, and EUR pared losses against USD breaching 1.10 level. German and US 10y yields increased around 10bp as demand for safe havens took a breather. Commodity prices also backed off with Brent oil briefly visiting below USD 100/barrel and European gas prices hovering around 110€/MWh. Despite optimism around peace talks, we highlight that markets remain highly sensitive to headlines. Also, in the light of ever more aggressive use of force by the Russian army against civilians in Ukraine, we cannot rule out a further step-up of Western sanctions against Russia, and a potential further hit to the global risk sentiment. In the coming week, focus will remain in Ukraine war developments and the peace talks. European leaders will meet for an EU-summit on Thursday-Friday, discussing the economic fallout from the war and possible fiscal support measures. The data calendar is light but we will keep a close eye on global PMIs on Wednesday. Particularly, we expect the renewed disruptions from the war on supply chains to be reflected in a dip in the euro area manufacturing activity. Download The Full Weekly Focus

UK Spring Budget – 23/03 – at a time when the UK is facing a cost-of-living crisis and inflation levels that could well head back to levels last seen in the 1990s it beggars belief that the Chancellor of Exchequer is set to go ahead with a National Insurance tax rise, that will add to the tax burden for both business and consumers next month. While it can certainly be argued that taxes must rise to pay for the costs on the NHS of the Covid crisis, the decision to implement these measures was taken at a time when the economic situation today was expected to be quite different. There is a saying in financial markets that when the facts change, I change my mind, and surely it should be no different when managing the public finances. Pursuing a bad investment strategy in financial markets and then doubling down it would usually result in an even worst outcome, and yet what we have here appears to be the political equivalent. When Chancellor of the Exchequer Rishi Sunak gets up later this week to announce his spring statement, he isn’t expected to resile from the increase in NI rates which are due to start next month. This will mean that inflation levels, which are expected increase further in the coming months, will further squeeze consumer disposable income and slow the UK economy over the course of the rest of the year. Businesses of all sizes have already undergone a tough couple of years, and while the government has gone to great length to support them there appears little likelihood of an immediate reprieve in the short term. The OBR will have to set out its latest inflation and growth forecasts for the UK economy, with the Chancellor having to then sketch out how he plans to navigate his way around the challenges being thrown up by the rise in food, energy, and other related rises in living costs. While Sunak has already outlined some measures to alleviate some of the increase in costs this only covers families and doesn’t cover businesses. Pressure from business to reform business rates is likely to go unanswered, although we might see an extension to the super deduction which is due to end at the end of 2023, with some calls that it ought to be made more inclusive so small businesses can use it. We could also see an announcement of a review of defence spending in light of Russia’s war on Ukraine.   UK CPI (Feb) – 23/03 – having seen the Bank of England raise rates by 0.25% last week this week’s latest inflation numbers are unlikely to offer much encouragement that we won’t see further sharp rises in the cost of living in the coming months. With wages growth still trending below headline CPI we are unlikely to see the gap narrow in the coming months, despite recent above headline inflation pay rises announced by major retailers in the last few months. In January UK CPI rose to a new 30 year high of 5.5%, while RPI rose to 7.8%, and is set to go higher this week with CPI rising to 6%, and RPI set to bust above 8%. Slightly more worrying, for those looking for signs of a top in price pressures, there was little sign of a slowdown in the more forward-looking PPI numbers which continued to rise as output prices came in at their highest levels since 2008 at 9.9%, although input prices slowed to 13.6%, from 13.8%. The modest increase in core prices to 4.4% also showed that underlying inflation is still on the rise, and is likely to rise further. Let’s not forget the Bank of England has already indicated it expects to see headline CPI rise to 7.25% by April, and go even higher later in the year, which suggests that we could see the headline number this week hit 6%, with the very real worry given recent surges in commodity prices that this could head towards 10% by the summer.   UK retail sales (Feb) – 25/03 – UK consumer spending saw a strong rebound in January, after the -0.4% slowdown seen in December. Not only did fuel sales recover, but we also saw a strong rebound in household goods and furniture, with high street sales showing a decent pickup, as 2022 got off to a decent start with a 1.9% rise. The numbers also show that while demand appears to have picked up, the retail sector still has to confront significant challenges in the months ahead as prices rise, and disposable income starts to reduce. This squeeze hasn’t as yet shown up in the latest BRC retail sales numbers, which showed that total sales rose by 6.7% in February, as the complete removal...