Sunset Market Commentary

Markets

What can’t go up, must come down! US Treasuries attempted two straight sessions to rally on disappointing US eco data. On Wednesday following a small downward headline CPI deviation and yesterday on a similar negative surprise coming from PPI figures. Wednesday’s rally still ended with gains, even if they closed off intraday highs. Yesterday’s leap higher was already weaker in magnitude with signs of fatigue immediately emerging and (longer term) Treasuries even closing with losses. Today’s downward surprise from import/export prices and retail sales (-1% m/m in March vs -0.5% m/m expected; control group better than feared though at -0.3% m/m) triggered negligible spike higher before investors decided to square some positions. The profit taking move pulled US Treasuries lower. US yields currently add 4 bps (30-yr) to 10.7 bps (2-yr). The latter tries to settle back above the psychologic 4% mark. Comments by Fed Waller give the move some additional momentum. He is giving some hawkish counterweight to both market positioning and more dovish comments from other Fed members. He wants to tighten monetary policy further because financial conditions have not significantly tightened, the labor market continues to be strong and quite tight and inflation is far above target. Waller would welcome signs of moderating demand, but until they appear and he sees inflation moving meaningfully and persistently down toward the Fed’s 2% target, he believes there is still work to do. He interprets this week’s inflation data as having not made much progress on the inflation goal. The US yield comeback stopped USD weakness. EUR/USD traded above 1.1050 going into today’s figures, to currently changes hands at 1.1025. The YTD low in the trade-weighted dollar (100.82) was tested, but stood its ground. US stock markets opened slightly positive with European indices outperforming (+0.5%). German yields add up to 6.3 bps at the front end of the curve. The likes of ECB Wunsch, Holzmann, Nagel, Vasle, Kazaks and Scicluna yesterday and overnight floated the idea of sticking with 50 bps rate hikes in May. ECB Lagarde confirmed that underlying inflationary pressures remain strong. Finally; Reuters reported that more and more ECB governors like the idea of stopping bond reinvestments all together after Q2. A hard stop this year would imply around €58bn worth of maturities compared to sticking to the current pace of €15bn/month. The “sources” article will get more traction as we approach May and June ECB policy meetings.

News Headlines

The International Energy Agency warned that the output cuts announced by OPEC+ last month risk exacerbating an oil supply deficit that in the second half of the year. OPEC+ described the unexpected move as a precautionary one. It triggered a sharp oil price increase of which the IEA says it could hurt consumers and the global economic recovery, potentially induce a recession. The agency estimates that global oil supply will fall by 400 000 barrels per day as the 1.4m OPEC+ output cut would be partially compensated by increased production outside the cartel. Oil prices today eke out a small gain of about 0.5%. Brent oil is currently trading at around $86.45/b. Before the OPEC production cut, one barrel was sold for less than $80.

Swedish inflation cooled slightly more than expected in March. Headline prices rose a monthly 0.6% (vs 0.9% expected) to be up 10.6% on an annual basis. That’s down from 12% in February and slightly lower than the 11% consensus estimate. The headline gauge using a fixed interest rate (CPIF) eased from 9.4% to 8% (vs 8.3%). Core CPIF (ex. energy) printed 0.6% m/m and 8.9% y/y. It’s the first time since January 2022 that the latter measure has eased. But although missing the a 0.8% m/m and 9.1% y/y analyst forecast, it is it well above the Riksbank’s own 7.5% projection made in February. This also goes for the headline CPIF, which the Riksbank forecasted at 7.8% for March. It keeps the central bank on track for the flagged spring rate hike (April 26). This may well be another 50 bps move, to 3.5% given today’s inflation numbers and the fact that the Swedish krone – which recently became a matter of concern for the Riksbank – barely left the recent lows. EUR/SEK today changes hands at around 11.34. This compares to the highs seen earlier this year just above 11.40. The only time the SEK traded weaker still which in the wake of the GFC, when EUR/SEK temporarily rose beyond 11.50. Swedish swap yields rise between 0.8 and 3.1 bps today.