Markets
The economic calendar turned somewhat more interesting today but the most critical data points (US JOLTS job openings and Conference Board consumer confidence) unfortunately are scheduled for release after this report. We did receive the June US house prices in time. They rose for a fifth month in a row by 0.92% m/m, more than the 0.80% expected. The yearly measure still stood at a negative -1.17% but that was less than the -1.73% in May, thereby snapping a protracted decline that started in April 2022. Some German data is definitely worth mentioning as well, even as markets didn’t quite pick it up. The federal statistical office said wages in the country grew 6.6% in the second quarter, up from 5.6% in Q1 and the fastest pace since data collection began in 2008. With the latest inflation number (July) coming in at 6.5%, real wage growth was positive for the first time since 2021. With every further inflation deceleration (6.3% in August, according to consensus for Thursday’s publication), real wage growth turns more positive … potentially helping consumer spending to rebound … which could thwart the disinflationary process. It’s a catch 22 that requires a restrictive monetary policy for long enough to escape from.
Turning to FI and FX markets now. US yields dipped lower in Asian dealings with the front end again outperforming before hitting a bottom early in the European session. The 2-y yield, even though still losing about 2.7 bps, holds north of the symbolic 5% barrier. Other tenors moved higher before paring gains as the US entered. German yields showed a similar pattern with early (yet minor) losses being erased to trade more or less unchanged compared to yesterday’s close. The front underperforms. Gilts underperform global peers with UK yields adding 3.1-5.8 bps across the curve on the first UK trading day of the week. Sterling doesn’t profit with EUR/GBP hovering around opening levels in the 0.858 area. The dollar is trading with a minor strengthening bias, gaining against all G10 peers. EUR/USD flipped opening gains for losses to trade near the recent lows of 1.0786. The trade-weighted index rises from 103.95 to 104.33 and seems to be preparing for a new attack on the May high (104.7). USD/JPY already broke beyond previous resistance of 146.63, surging to 147.24.
News & Views
Czech GDP in the April-June quarter rose by 0.1% Q/Q, a more refined estimate of the Czech statistical office showed. Activity was still 0.4% lower Y/Y. Quarterly growth was supported by a 3.4% Q/Q growth in fixed capital formation as investments in transport equipment, ICT and other machinery and equipment gained rebounded. Dwelling investment and other buildings and structures decreased. Inventories contributed negatively. Final consumption expenditure rose 0.3% Q/Q. It was the first time in six quarters for this factor to contribute positively. Government consumption rose 0.3% Q/Q. Exports (-0.5% Q/Q) and imports (-1.2% Q/Q) both declined. The CNB on its website said that Q2 growth was slightly stronger than its latest projection (-0.7% Y/Y expected). It indicated that the modest quarter consumption growth was fostered by gradually decreasing inflation. Also gross fixed capital formation was better than CNB expected. The CNB states that the economy already emerged from a shallow recession. The koruna today trades little changed near 24.15. Czech money market rates hardly reacted. The Czech 2-y yield even eases marginally further to 5.38% as the market still sees a potential start of the CNB easing cycle in Q4. Czech Central bank governor Michl today reiterated that inflation is still at unacceptable high levels.
The National Bank of Hungary today as expected further reduced to overnight deposit rate to 14%. The official base rate was left unchanged at 13% as is this is seen as keeping monetary conditions sufficiently tight. MNB still expects that domestic CPI inflation and core inflation will continue to decrease at a rapid pace in coming months. It also sees real interest rates to move in positive territory soon. The NMB stressed the faster an expected improvement in the external balance. Looking ahead, the bank repeated that that financial market stability is key to achieving price stability. In the current environment, a cautious and gradual approach is warranted. At the press conference, Deputy Governor Virag also said that the MNB will simplify the MNB toolkit when the 1 day rate will be aligned with the base rate. The forint gains modestly after the decision to currently trade near EUR/HUF 382.15.
