Markets
After a brief rebound yesterday, yields again turned south today. Growth and inflation data published in several EMU member states understandably painted somewhat of a diffuse picture. Growth rebounded more than expected in Spain (0.5% Q/Q, 3.8% Y/Y), Italy (0.5% Q/Q, 1.8% Y/Y) and Portugal (1.6% Q/Q and 2.5% Y/Y). French growth printed as expected (0.2% Q/Q, 0.8% Y/Y). Germany (0.0% Q/Q and -0.2% Y/Y WDA) and Austria (-0.3% Q/Q) disappointed. In the end, EMU growth only reached 0.1% Q/Q and 1.3% Y/Y vs 0.2% Q/Q expected. Aside from a slightly disappointing growth performance, markets were even more focused on members states’ inflation data. Spanish HICP inflation reaccelerated (0.6% M/M and 4.1% Y/Y from 3.3%). Still the rise was less than expected and core inflation eased from 7.5% to 6.6%. French HICP inflation printed marginally stronger than expected at 0.7%M/M and 6.9%. German inflation slowed more than anticipated (HICP 0.6% M/M and 7.6% Y/Y). The monthly rise in most countries still suggests that the inflationary dynamics is far from eradicated. However, markets concluded that today’s data might help tilt the debate at next week’s ECB meeting more towards a 25 rather than a 50 bps hike. The final word in this debate is for the EMU (core) CPI estimate and the Euro Area bank lending survey, both scheduled for release next Tuesday. Still German yields after the morning data ease up to 10+ bps across the curve. US data, brought no big surprise. The US Q1 Employment cost index rose 1.2%, slightly more than expected. March spending and income data, annex the March core inflation deflator (0.3% M/M 4.6% Y/Y) were too close to expectations to change the bond friendly market sentiment. US yields currently are ceding between 2 bp (2-y) and 7 bps (10 & 30-y). Bunds outperform with yields declining between 10.5 bps (5- 10-y) and 8.5 bps (30-y). Markets now only see chances of about 10-15% for a 50 bps ECB rate hike next week. We think that this is quite a ‘minimalistic’ assessment. The combination of the EMU avoiding a recession and the easing yields this time didn’t help European equites, even after strong WS gains yesterday evening, as a negative guidance from Amazon (amongst others) dented sentiment. The Eurostoxx 50 is ceding about 0.5%. US indices opened marginally lower (0.1-0.3% lower). Oil stabilize/gains marginally after steep decline earlier this week ($ 79.2 p/b).
A sharp decline in European yields, persistent uncertainty on future (global) growth and a risk-off sentiment, initially looked as turning out USD positive. DXY tried to break out of a downtrend channel, but a part of the initial gains evaporated as the US session evolves (currently 101.85 from 101.50 area). EUR/USD slipped temporarily below the 1.10 but returned to the big figure level. Cycle/commodity related currencies (EUR/NOK 1.1078 (also cf infra), AUD 0.658, USD/CAD 1.364) mostly trade in the defensive. The yen is losing heavily as market don’t expect a BOJ policy change anytime soon after the first policy meeting under new BOJ governor Ueda. USD/JPY jumped two big figures, north of 136(05). EUR/JPY (149.60) nears the end 2014 top (149.78). Sterling trades marginally stronger against the dollar (1.25) and outperforms the euro with EUR/GBP extensively testing the 0.88 handle.
News & Views
The Norwegian central bank said that it will purchase FX on behalf of the government equivalent to NOK 1400 mn per day in May 2023. That’s down from 1500mn/day in April and the lowest amount of monthly FX purchases since March 2022. However, from 2014 until early 2022, the Norges Bank was a net seller of FX/buyer of NOK. Investors hoped that the amount of FX purchases would fall faster with EUR/NOK spiking from 11.70 to nearly 11.85 on the release. It’s the weakest NOK-level since the height of pandemic early 2020. The krone is the worst performing G10 currency against both the euro and the dollar YTD. The Norges Bank FX transactions are conducted as the Norwegian government receives revenues from petroleum activities in both NOK and FX. Part is used to finance the budget deficit and part is saved in FX in the Government Pension Fund Global.
