The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.

0904 GMT - The U.K. government in February borrowed GBP16.7 billion, the highest figure for that month since records began, as cushioning households from the impact of sky-high energy costs came with a huge price tag, AJ Bell says. But the silver lining from February's economic grey clouds is that the cost of servicing all that debt fell GBP1.3 billion compared with last year, thanks to the vagaries of index-linked gilts, Danni Hewson, AJ Bell head of financial analysis, says in a note. Still, the debt-to-GDP ratio has climbed over the 99% mark, hitting levels last seen in the early 1960s, which will focus minds in a treasury tasked with bringing debt levels under control, she adds. (edward.frankl@wsj.com)

0839 GMT - The Additional Tier 1 (AT1) bond market poses a threat to improved investor sentiment in Europe after the Credit Suisse takeover deal by UBS resulted in AT1 bonds being written off, say ING analysts in a note. "The market's focus in Europe appears to be on the vulnerability of Additional Tier 1 bondholders after the Credit Suisse acquisition deal by UBS saw AT1 bonds being wiped out," they say. "The AT1 bond market now poses a major threat to any extension of the recovery in investor sentiment in the region." (miriam.mukuru@wsj.com)

0834 GMT - The U.K.'s public finances in February may have raised Chancellor Jeremy Hunt's chances for tax cuts in the fall, Ruth Gregory, deputy chief U.K. economist at Capital Economics, says in a note. Public sector net borrowing, excluding banking groups, actually came in at the highest February deficit since records began in 1993, at GBP16.7 billion, mainly due to the government's energy support programs, she says. But cumulative borrowing this year is below forecasts from the OBR fiscal watchdog, tax receipts were higher than last February, and self-assessed tax receipts in January and February were the highest two-month equivalent on record, giving encouraging signs the economy has become more tax rich, she says. Despite risks that the banking sector's turmoil deepens, the chancellor could have fiscal headroom in the next fiscal update, she adds. (edward.frankl@wsj.com)

0825 GMT - Metal prices are slipping in early trade in London, with traders looking to tomorrow's decision on interest rates from the U.S. Federal Reserve and how this will shape monetary policy. Three-month copper is down 0.3% to $8,688.50 a metric ton while aluminum is 0.5% lower at $2,273 a ton. Gold meanwhile is down 0.5% to $1,973 a troy ounce. "Markets are in waiting mode ahead of tomorrow's Fed decision," says Dave Whitcomb, head of research at Peak Trading Research in a note. Whitcomb says that the Fed's decision will be this week's key macroeconomic driver, with markets pricing between no hike or a quarter basis-point rise. "How [Fed Chairman] Powell balances inflation pressures versus financial risks will be critical," Whitcomb adds. (yusuf.khan@wsj.com )

0822 GMT - European insurers have limited exposure to banks' so-called additional tier one--or AT1--bonds which have been in focus after UBS's takeover of Credit Suisse, Berenberg analysts say in a note. Swiss financial regulator Finma said the deal would trigger a write-down of Credit Suisse's AT1 debt with a nominal value of around CHF16 billion. The insurance industry's average exposure to bank AT1s stands at 16 basis points of solvency own funds and Berenberg estimates only Sampo, ASR Nederland, Assicurazioni Generali, Storebrand, Tryg and Scor have an exposure above 20 basis points. "Our conclusion is that the European insurers' exposure is not material at the level of Credit Suisse's total bank debt, very small at the level of total bank sector AT1s and negligible at the level of Credit Suisse's AT1s," Berenberg says. (adria.calatayud@dowjones.com)

0817 GMT - The dollar rises and has the potential to gain further ahead of Wednesday's Federal Reserve policy decision as investors conclude that a 25 basis-point rate rise is more likely than rates being left steady, ING currency analyst Francesco Pesole says in a note. "We wouldn't be surprised to see the dollar--which fell yesterday as risk sentiment rebounded--find some support into the FOMC announcement as markets turn more defensive and potentially factor in a greater risk of a hawkish scenario." The Fed decision will be "a big risk event," with markets currently only pricing in around a 60% chance of a rate increase, he says. The DXY dollar index rises 0.1% to 103.407. (jessica.fleetham@wsj.com)

0810 GMT - Central banks will want to push ahead with policy tightening plans, according to Mizuho's analysts who expect a differentiation between price targets and financial stability goals. The U.S. Federal Reserve will confirm decisions on Wednesday, followed by the Bank of England on Thursday. "We expect them to make a strong differentiation between their price and financial stability goals, in line with [European Central Bank President Christine] Lagarde and the ECB," Mizuho rates strategist Evelyne Gomez-Liechti and head of research Helen Rodriguez say in a note. "Keeping financial conditions tight likely continues to be a priority; the rate cuts priced for early H2-23, in the case of the Fed, look too extreme to us," they say. (emese.bartha@wsj.com)

0800 GMT - Malaysia near-term's external demand may face pressure as global macroeconomic uncertainties weigh, especially the recent banking crisis, say Affin Hwang Investment Bank economist Alan Tan Chew Leong and team in a note. They cite still-high inflation, which may lead to tighter global financial conditions in the short term, and the prolonged Russia-Ukraine war as external downside risks. Malaysia's overall trade performance is projected to deteriorate in coming months as a result of a slowdown in global semiconductor sales, they add. Affin Hwang maintains Malaysia's 2023 real GDP growth estimate at 3.7%, compared with 8.7% last year. The bank projects real exports growth to slow to 3.5% from 12.8% in 2022, and real imports growth at 4.4% this year, compared with 14.2% last year. (yingxian.wong@wsj.com)

0755 GMT - Eurozone government bond yields fall, signalling continuing investor caution in light of the banking turmoil, DZ Bank says in a note. Nonetheless, the relatively muted yield drops point to tentative stabilization, the bank's analyst Christian Reicherter says. "Regarding bond-market sentiment, nerves are still jangling on both sides of the Atlantic in response to the uncertainties racking the banking sector," he says. "Yet market actors appear cautiously optimistic that the current bout of turmoil is not going to escalate into a global financial crisis." The 10-year German Bund yield is trading about 1 basis point lower at 2.103%, while drops in yields of equivalent bonds of eurozone states are slightly bigger, according to Tradeweb. (emese.bartha@wsj.com)

0725 GMT - The U.S. Federal Reserve is expected to raise interest rates by 25 basis points at this week's meeting, but the decision and outlook for any tightening depend on financial stability, Bank of America's analysts say in a note. "Recent economic momentum and inflation have been overshadowed by banking system risks, sharply repricing the Fed's path," they say. Bank of America's analysts stick to their view on monetary policy outlook, including a terminal target range--the level at which the Fed will stop raising rates--of 5.25-5.5%, and a mild recession in the U.S. beginning from the third quarter of 2023, they say. "We now see a greater risk of Fed tightening and balance sheet reduction ending sooner," they say, adding that they saw risks that both would last longer previously. (emese.bartha@wsj.com)

0717 GMT - The premium on Germany's 1.30% October 2027 green Bobl versus its conventional twin is driven by scarcity and broader interest in environment-focused investors, Commerzbank's analysts say in a note. "The decent greenium [green premium] of around 7.5bp is probably just as much attributable to relative scarcity given the relatively small-sized issues as it is to genuine green interest," Commerzbank's rates strategists Michael Leister and Hauke Siemssen say in a note. The German Finance Agency will auction EUR1.5 billion in the October 2027 green Bobl, with auction results due at 1030 GMT. (emese.bartha@wsj.com)

0709 GMT - Despite tensions on the financial markets stemming from the collapse of Silicon Valley Bank, economist expectations point to another 25 basis point interest-rate rise by the Federal Reserve on Wednesday, Andrea Conti, head of Eurizon's macro research and product specialist team, says in a note. The market is more sceptical, however, he says, with views divided between an interest-rate rise and a decision to keep the Fed funds rate unchanged, he says. "The spotlight will also be on the updated projections for Fed funds rates (dot plot) and on [Fed Chair] Jerome Powell's press conference, to garner elements [of] information on the future path of interest rates," Conti says. (emese.bartha@wsj.com)

(END) Dow Jones Newswires

March 21, 2023 05:07 ET (09:07 GMT)

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