Markets
Risk-on following the Credit Suisse take-over entered its second day. Sentiment got an additional boost by reports of the US considering to temporarily guarantee all deposits (including those above the $250k threshold) if tensions rise again. And new proposals emerged to help out a fourth US bank in trouble, First Republic Bank, suggesting all parties involved are keen on finding a solution. European shares rise 1.5% with the Euro Stoxx 50 taking out lost neckline support-turned-into-resistance at around 4172. Just yesterday, the index risked breaking below the symbolic 4k barrier. US stocks add about 0.75%. Core bonds tumble. US yields add 4.2 (30y) to 14.6 bps (2y), yet money markets are still not sure whether the Fed’s going to hike tomorrow by 25 bps (4/5) or not (1/5). And if it does, it is probably the last one according to current pricing. German yields advance 6.1 (30y) to 15.0 bps (2y) with European swap yields following at a distance (3.9-9.1 bps). In both core countries, important support for the 10y yield at respectively 3.319% (previous 2023 correction low) and 1.92% (June 2022 interim high) survived thanks to a sharp U-turn yesterday and today’s follow-through rebound. Short-term yields experienced a huge amount of volatility, but there too support areas around 4% and 2.5% resp. have held. UK gilt yields rise 0.5-4.5 bps as investors count down to the Bank of England meeting on Thursday.
Currency markets do not correspond to a typical risk-on trading session. Especially the currencies Down Under miss out on the rally. The move was Aussie driven, with the publication of the minutes of the previous monetary policy meeting weighing down on the currency. They were more tilted towards a pause (or more) at the next meeting than the policy statement hinted at. AUD/USD drops from 0.6726 to 0.667. NOK and SEK outperform but both trade at still very weak levels historically (EUR/NOK 11.32, EUR/SEK 11.11). Central-European currencies are doing well. The forint is taking the lead (EUR/HUF tested 390). EUR/CZK drops sharply from around 24 to 23.81 currently while the zloty, as often has been the case lately, is trading stoic-to-slightly-stronger around 4.70. Of late risk-sensitive GBP held up well, strengthened even when market tensions were running high. Today, EUR/GBP soars past 0.88(1) again. A relative to Bunds (and Treasuries) underperformance followed by outperformance of UK gilts explain some of those counterintuitive moves. Among the larger currencies, the euro tops the dollar. EUR/USD rises beyond 1.0735 resistance to change hands at 1.0766. The yen loses out against both.
News & Views
Polish real retail sales remained sluggish at the start of the year. After declining 23% M/M in January, the volume of sales contracted another 3.6% M/M in February. The monthly decline put the level of sales 5.0% below the level during the same month last year. In a monthly perspective only the subcategory motor vehicles and parts (+8.0%) succeeded positive growth. Negative growth figures amongst others were recorded for household goods (-12.2%), textiles (-14.9%), newspapers and books (-6.6%) and food and drinks (-3.9%). The data published today and softer production data published earlier this week suggest that final demand in the economy is slowing. Even so, with both headline (18.4 Y/Y) and core inflation (12.0% Y/Y) holding at cycle peak levels, it’s too early for the National Bank of Poland to already open the debate on a specific timing of rate cuts. In line with a better risk sentiment, the zloty today strengthened back below the EUR/PLN 4.70 area.
February inflation in Canada printed close to expectations. Headline inflation slowed slightly more than expected to 0.4% M/M and 5.2% Y/Y (was 0.5% M/M and 5.9% in January, 5.4% was expected). Core inflation measures which are closely monitored by the Bank of Canada (median 4.9% from 5.0%, trimmed 4.8% from 5.1%) also slowed. Looking at the details, the decline was mainly driven by energy costs (-1.2% M/M). Overall goods prices still rose 0.4% M/M as was the case for services (0.4% M/M, 5.3% Y/Y). Price rises for shelter slowed to 0.2% M/M. Even as inflation remains well above the 1-3% target range of the Bank of Canada, the report didn’t cause a big repositioning in Canadian FI and FX markets. Money markets still hold to the scenario that the Bank of Canada probably won’t hike rates any further, especially given recent uncertainty on financial stability. The Canadian dollar even lost a few ticks with CAD/USD trading near 1.367.
