Citi

European Open

Some markets reopened in Asia, following Lunar New Year Holidays. However, we note that CNY/HKD/TWD are still on holiday. In terms of moves, the plunge in equity futures late in NY session was the highlight, as sour earnings caused 2% dips. USD modestly gained in the Asian session, continuing a trend seen in NY, while UST saw modest bull steepening moves in Asia on the back of weaker equities. AUD and NZD saw slightly choppy price action, while JPY saw dovish comments from BoJ deputy governor Wakatabe (seen as more dovish among the 2 deputy governors).

All eyes are on Europe today, with 2 major decisions to be made. We will start of by watching the BoE at 12:00 GMT, with Bailey’s press conference to follow at 12:30 GMT. Citi economics expects a unanimous 25bps hike, the beginning of passive QT, and potentially more hawkish near-term guidance. We will then turn our eyes to the ECB at 12:45 GMT, followed by President Lagarde at 13:30 GMT. Yesterday’s hot CPI prints have tilted the risk balance, although Citi eocnomics says the December decision to extend net asset purchases at least until September will keep the Governing Council on hold.

Elsewhere, we will see USD seeing some data in the form of initial jobless and continuing claims at 13:30 GMT, and ISM services index at 15:00 GMT. We will also see Fed Nominees Raskin, Cook, and Jefferson appear before Senate at 15:00 GMT, where Citi Economics expect them to skew slightly more dovish. In other markets, HUF is likely to see no change at its one-week deposit rate decision at 08:30 GMT, TRY sees CPI at 09:30 GMT while CZK sees a rate decision at 13:30 GMT, in which a 75bps hike to 4.50% is expected.

BOE Preview

The Bank of England Bank Rate decision at 12:00 GMT, with Bailey’s press conference to follow at 12:30 GMT. Citi Economics expects a unanimous 25bps hike, the beginning of passive QT, and potentially more hawkish near-term guidance. Our bias remains towards a rapid but ultimately limited monetary tightening in H1-2022, with an easing of short-term pressures likely to mean a refocusing on a subdued medium-term outlook.

–CitiFX Wire’s Rui Ding compiles the BoE expectations from Citi in Bank of England expectations: Third time’s the charm. Aside from Citi Economics’ view, Citi Rates strategy sees risk reward skewed for a dovish outcome, while CitiFX Strategy notes that the bar is high for a hawkish surprise.

ECB Preview

ECB rate decision at 12:45 GMT, with President Lagarde's Press Conference at 13:30 GMT. Citi Economics says the December decision to extend net asset purchases at least until September will keep the Governing Council on hold. But, high and rising inflation will keep rate setters on their toes. Many will want to send a signal that inflation is a concern. The guidance is unlikely to change, but the balance of risks can. Press conference and the minutes later may send a hawkish message.

–CitiFX Strategy's Vas Gkionakis maintains his base case that it is unlikely to be a major catalyst for the euro. We do not expect any change in the ECB’s forward guidance on interest rates and see the bank staying on track to end PEPP in March and continuing with reduced asset purchases (APP), in line with the announcements made in December. However, he notes the balance of risks has shifted towards a hawkish surprise and pens 2 scenarios of note. The second scenario (hawkish surprise) would come in the form of ECB president Lagarde not ruling out a rate hike this year.