Markets
Persistent uncertainty on the economic impact of the war in Ukraine combined with country specific themes caused some ‘diffuse price action’ on global markets today. This morning, Chinese equities again faced hefty selling despite solid eco data as markets pondered the impact of further regulation, elevated commodity prices and persistent political and trade tensions with the US. The risk-off initially spilled over to Europe with regional indices, at some point recording losses of 2.5%+. However, selling pressure gradually subsided. European equities currently are losing about 0.50% . US indices are rebounding 1.0%/1.5%. Eco data for sure weren’t the driver for this improvement. The expectations component of German ZEW investor confidence tumbled more sharply than ever before in March, from + 54 to minus 39.3, the biggest drop since the start of the series in 1991. ZEW President Achim Wamback commented that ‘The experts … expect a stagflation in the coming months. The worsened outlook affects practically all sectors of the German economy’ General business conditions of the manufacturing sector as measured by the NY Fed also nosedived to the lowest level since May 2020 (from 3.1 to 11.8). The survey responses were collected at the start of the Russian invasion in Ukraine (between 2 & 9 March). On the positive side of the economic story, pressure on some commodities continues to ease, with brent oil falling below $100/b. US and German yields are correcting lower after yesterday’s steep rise. US yields are ceding between 6 bps (2-y) and 2 bps (30-y). German yields are easing between 4 bps (2 & 5-y) and 1.8 bps (30-y). The move was supported by a limited decline in inflation expectations. At the same time, lingering global uncertainty and technical/tactical repositioning ahead of tomorrow’s Fed decision probably are also in play. Intra-EMU spreads narrowed modestly (Italy -3 bps).
On Fx markets, the decline in the oil price apparently is providing some breathing space to the euro and the yen. EUR/USD briefly surpassed the 1.10 barrier (currently 1.099). The USD/JPY rally finally did run into resistance, with the pair currently hovering around 118. Sterling initially didn’t profit from solid UK labour market data published the morning. EUR/GBP even briefly tested the 0.8455 area. However, sterling later staged a an intraday rebound, both against the euro. EUR/GBP currently trades near 0.841. Cable tested the psychological barrier of 1.30 this morning in Asia but is now changing hands in the 1.3065 area. CE currencies (Czech koruna, forint, zloty) all record modest gains. Polish February inflation eased from 9.4% to 8.5% on government measures/tax cuts to slow prices rises. Still the figure was higher than expected.
News Headlines
The Norwegian central bank published its quarterly regional network survey today. Interviewed contacts indicated that business activity continues to rise and they expect even stronger growth over the next six months. Over half of the interviewees reported capacity constraints, the highest share since autumn 2007. That’s even without taking into account the consequence of the Russian invasion in Ukraine as the survey was conducted early February. Contacts have revised up their estimate for annual wage growth this year from 3.3% in November to 3.7%. The main reason for concern is uncertainty related to capacity constraints and a rapid rise in prices. The NOK benefited from the rather hawkish survey with EUR/NOK dropping from an intraday top around 9.98 to 9.85 currently. The move comes even as oil prices drop below $100/barrel (Brent) for the first time since end February. Norwegian money market expect the Norges Bank to deliver (25 bps) rate hikes at every remaining meeting this year (7). The policy rate currently stands at 0.50%.
The WSJ reports that Saudi Arabia is in active talks with China to price some of its oil sales to China in yuan instead of dollar. Talks accelerated this year because of Saudi unease over the US’s security commitments to defend the kingdom. China buys more than a quarter of all Saudi oil exports. Switching the oil denomination would boost the international appeal of the Chinese currency.
