Markets
The empty European eco agenda obviously failed to lift market spirits. ECB executive board Panetta, one of the final “doves” standing, suggested a downshift in rate hikes after the flagged +50 bps move in March. “With rates now moving into restrictive territory, it is the extent and duration of monetary policy restriction that matters. By smoothing our policy rate hikes – that is moving in small steps – we can ensure that we calibrate both elements more precisely in the light of the incoming information and our reaction function.” He stressed that to move in small steps is not to move less. Markets shrugged off the news as they did with the ECB’s new economic bulletin. From that moment, it turned in to a waiting game for the early US numbers. A new all-time high for the French CAC 40 index provided some welcome distraction (spoiler alert: inverted hammer warning). US data turned out a mixed bag. Markets spotted sub 200k jobless claims and a faster-than-expected acceleration in producer price inflation. Monthly headline (0.7% M/M) and core PPI (0.5% M/M) rose at the fastest pace since June and March 2022 respectively. Y/Y-readings decelerated less than feared to 6% (headline) and to 5.4% (core). We add the PPI-numbers in line with stellar payrolls, stubborn January CPI and very good retail sales. All support the case for Fed policy rates to peak above December projections and to stay at those levels for longer than anticipated. US Treasuries spiked lower and the dollar gained in a first reaction, but moves were temporarily hampered by those other data releases, painting a more uncertain picture. Housing starts fell by 4.5% M/M (vs -1.9% expected) with building permits stagnating by 0.1% M/M (vs 1% expected). The Philly Fed Business Outlook dropped to a new cycle low (-24.3) in February with details bleak over the whole spectrum (new orders, shipments, employment, average work week, expectations). Shortly after the numbers, Cleveland Fed Mester amplified market moves, by saying that she saw a compelling case for a 50 bps rate hike at the February meeting. If Mester (and others?) were prepared to stick to the 50 bps pace before this month’s batch of eco data, they (and more?) will surely be willing to put the option back on the table on March 22. Especially if February payrolls (March 10) stay strong and February inflation (March 14) stays high. Next week’s FOMC Minutes (Feb 22 release) can give additional color on how big the hawkish minority was last month. US yields rise by up to 4.5 bps (30-yr) today. The US 5-yr yield is trying to take out 4.04% resistance, which is the final stop ahead of the 4.5% cycle peak. The US 10-yr yield is approaching similar resistance at 3.9%. German yields follow the move higher with yields increases by up to 2.8 bps 10-yr. The German 10-yr yield moves above 2.5% and has the 2.57% cycle peak within reach. 10-yr yield spreads vs Germany widen by up to 2 bps for Italy. Italy today launched a new 30-yr syndicated benchmark (€5bn) with order books in excess of €26bn. The sell-off on core bonds for the first time in some sessions weighs on risk sentiment. Main European indices switched gains for losses with key US benchmarks opening more than 1% lower. The dollar gains ground (EUR/USD 1.0675) but can’t force the break below the 1.0650 area for now. We stick with our view that this is a matter of time. EUR/GBP returns above 0.89.
News Headlines
The Advocate General of the European Court of Justice, in an opinion published today, gave a non-binding advice on the renumeration Polish banks can ask customers after the annulment of FX mortgage loans due to unfair terms. According to the advice, a bank is not entitled to assert against a consumer claim that go beyond reimbursement of the loan capital transferred and payment of default interest at the statutory rate from the date of the request for reimbursement. Consumers on the other hand could claim additional sums beyond the cost of capital already repaid, which hasn’t been a common practice in these disputes till now. In the end national courts will have to rule on the individual cases according to national law, but in line with principles of the EU directive. A ruling of the EU Court now is expected within six months and can lead to substantial additional costs for Polish banks. Via lending conditions, it might also have broader impact on (the financing of the) economy. Polish Banks today underperform the broader local index. The zloty declined from the EUR/PLN 4.76 area to currently trade near 4.7775.
