Markets
US Treasuries hold near last week’s sell-off lows in an uneventful trading session awaiting major central bank decisions. US yield currently trade up to 1.5 bps higher across the curve with both the US 2-yr and 10-yr yield testing the YTD highs at 4.74% and at 4.34%. German Bunds face some similar minor selling pressure (German yields up to 2 bps higher). Ahead of Wednesday’s FOMC meeting, the ECB holds its annual Watchers conference with a lot of prominent ECB speeches including by ECB president Lagarde. We expect Wednesday to highlight the difference between the ECB readying a June policy rate and the Fed delaying such action until September by the earliest. EUR/USD holds below 1.09 with the above scenario suggestion room for decline towards the YTD low at 1.0695. USD/JPY is heading back towards 150 (149.25) even as the BoJ could tomorrow morning conduct a first rate hike since 2007. A stronger USD and the expectation that BoJ action, if any, will be very slow and gradual holds back JPY. EUR/GBP (0.8550) is going nowhere ahead of tomorrow’s CPI inflation figures and Thursday’s BoE policy meeting. US stock markets overcome Friday’s weakness, with key indices up to 1.7% (!) higher (Nasdaq) with Apple and Alphabet driving the move on a report of AI talks.
News & Views
The EMU goods trade surplus with the rest of the world printed at €11.4bn in January compared to a deficit of €32.6bn in January last year. EMU goods exports increased by 1.3% Y/Y to €225.9bn. Imports from the rest of the world stood at €214.5 bn, a fall by 16.1% Y/Y. A breakdown by product shows that the overall surplus is mainly driven by a surplus in the chemical sector, followed by machinery and vehicles. These developments are partly offset by a deficit in the energy sector. However, as a trend the energy deficit declined throughout 2024. On a seasonally adjusted basis, the EMU surplus even hit a record high in January 2024. Over the calendar year 2023, the EMU recorded a surplus of €64bn, compared with a deficit of €335bn in 2022. The euro area exports of goods to the rest of the world stood at €2841.7bn (a decrease of 1.1% compared to 2022), while imports fell to €2777.7bn (a decrease of 13.4% compared to the year 2022). Intra-euro area trade fell to €2630.8bn in the year 2023, down by 5.1% compared to the year 2022.
The National Bank of Poland’s core inflation data showed a further decrease in February, though largely as expected. Prices excluding food and energy prices printed at 0.5% M/M and 5.4% Y/Y, compared to 0.4% M/M and 6.2% Y/Y in January. CPI excluding administered prices rose 0.3% M/M and 2.8% Y/Y (from 0.2% M/M and 3.8%Y/Y). CPI excluding most volatile items slowed to 0.2% M/M and 4.5% Y/Y (from 0.5% M/M and 5.8% Y/Y). Earlier this month, the Polish statistical office reported headline Polish CPI easing to 0.3% M/M and 2.8% Y/Y and bringing it back within the NBP target range of 2.5% +/- 1.0%. However, core inflation staying above the headline measure and uncertainty on the impact of fiscal policy/phasing out measures to cap food and energy prices, makes the majority of the MPC cautious to give guidance on any further rate cuts in the foreseeable future. Several members even see little room to cut the policy rate this year. The zloty recently ran into resistance after touching the strongest level since 2020 earlier this month. EUR/PLN trades near 4.3125, compared to a PLN YTD at EUR/PLN 4.275 last week.
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