EU Leaders Meet in Versailles
International focus continues to be centred on any information about the worsening conflict in Ukraine and the global community’s subsequent responses. Following the abhorrent scenes from Russia’s attack on a children’s hospital and continued bombardments, heads of states and government from the EU met in Versailles to discuss the war in Ukraine and Kyiv’s potential membership into the Union. Poland is leading calls for Ukraine’s membership to be fast tracked, however other officials have stressed that such ‘fast tracking’ is not possible given the complexities of any country joining the bloc. Moving into its second day, delegates will also be discussing the EU’s energy strategy, specifically in relation to winding down member states’ reliance on Russian oil and gas. Given disparities in different countries’ reliance on Russian energy however, such discussions are likely to result in compromises having to be made. Indeed, while Germany has already agreed not to authorise Nord Stream 2, according to Breugel – a Belgium think tank – EU member states currently spend some €380 million on Russian gas, and some €360 million on Russian oil daily. Hence, all eyes will be centred on any rhetoric or sentiments coming out of Versailles to indicate the EU’s next move.

The Washington Post has more:

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ECB
While the ECB met market expectations by maintaining the base interest rate at 0%, their announcement concerning the winding down of their Asset Purchasing Programme saw some market movement given that their rhetoric gave the market some expectation on the possibility of a rate hike in Q4 2022. Established in 2014, the stock of Eurosystem APP bonds now stands at some €3.3tn and yesterday’s announcement means that purchases under APP will amount to €40 billion in April, €30 billion in May and €20 billion in June. Moreover, the ECB reconfirmed that they would cease net asset purchases under PEPP (the €1.85tn emergency bond-buying scheme established during the pandemic) by the end of this month.

The ECB also revised down their growth forecast from 4.2% to 3.7% while estimating that inflation would reach highs of 5.1% which is of course considerably higher than their previous prediction of 3.2%. Nevertheless, Laguard stated that inflation would likely stabilise at 1.9% in 2024 as they predicted that inflation would reach 2.1% next year. Hence, following yesterday’s news out of the ECB, the euro saw some appreciation, rising some 0.3% against the dollar.

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US CPI
US CPI hit a new forty year high yesterday as inflation hit 7.9% with m-o-m figures hitting 0.8%. Notwithstanding the fact that this data captures the period prior to the Russian invasion of Ukraine and Washington’s subsequent sanctions on Russian oil and gas, the monthly energy index rose 3.5% while gasoline rose 6.6%. This means that energy prices are some 25% higher than a year ago, putting substantial pressure on US households and business. Moreover, m-o-m food prices rose 1% which is the highest level since April 2020 and indicated that the index rose 8% over the last year. Hence, with the conflict in Ukraine exacerbating energy and food supplies, inflation is expected to continue to increase, while peak inflation is expected to be pushed back to a date further in the future.

Notwithstanding yesterday’s inflation print, the general market consensus is that the Fed are expected to continue on course with a 25bpt hike on 16th March and around five further hikes this year. Stagflation is also increasingly permeating the market vernacular is as inflation continues to grow and growth forecasts have been revised down as supply chain issues, low wage growth and risk-off sentiments persist.

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