Sunset Market Commentary

Markets

Trading to the new week took a slow start data-wise. European production data for sure are no market movers. However, for once, we mention German February production coming out on the stronger side of expectations for the second consecutive month (+2.1% M/M; -4.9% Y/Y vs -6.8% expected). The report won’t change the ECB’s assessment on the timing of the start to the rate cut cycle. Even so, it reminds markets that EMU activity probably passed the trough, potentially easing the need for aggressive, pre-emptive rate cuts further out this year. German yields also still had some catching up to do on Friday’s US move, currently adding between 2.5 bps (30-y) and 4.0 bps (5 & 10-y). Still, in a broader perspective EMU/German yields for now hold within a sideways pattern capped by the YTD top levels reached end February. US graphs in this respect are telling a different story. Excellent March US payrolls on Friday only reinforced the idea that the Fed is facing growing risks if it would move too early with cutting rates. US yields on Friday closed at/slightly above the YTD peak levels and this technical break higher is extended today. Yields adds between 1.5 bps (2-y & 30-y) and 3.0 bps (5 & 10-y). The US 10-y real yield also decisively regains the 2.0% mark (2.05%). Higher-than-expected (or maybe even in-line) March US CPI data on Wednesday (expected 0.3% M/M for both core and headline) probably will be enough to confirm this break and further push back expectations for a first cut to September rather than in July or June (currently priced at 90% and 50% respectively). In this context, we also keep a close eye on this week’s US Treasury auctions (3-y Tuesday, 10-y Wednesday and 30-y Thursday). Dwindling buying interest, if it were to happen, also might reinforce the break higher in yields.

For now, there is only limited (negative) spill-over from higher (real) US yields to other markets including commodities, equities and FX. The likes of copper are trading at the strongest level since mid-2022. After a hesitant start, European equities are gradually catching up part of Friday’s US rally (EuroStoxx +0.7%). US indices open little changed, but still have the all-time record levels within reach (<2% for the S&P 500 and the Nasdaq). The USD basically is going nowhere. DXY gains marginally (104.35). EUR/USD trades little changed (1.0835). USD/JPY is the exception to the rule resting the 151.95 multi-year top, but this probably is mainly yen softness with markets testing Japanese authorities’ resolve to prevent further yen losses. Sterling still sightly underperforms the euro, but EUR/GBP stays below first technical resistance in the 0.8600/02 area.

News & Views

The Swedish crown is among the best performers in the G10 currency landscape today. EUR/SEK dipped from 11.53 at the open to 11.46 currently. SEK lost ground rapidly since mid-March, amongst others on speculation that the Riksbank would soon start to lower rates following stronger-than-expected disinflation. Stockholm at the March meeting indeed hinted at a first move in May or June, tilting earlier “H1 2024” guidance slightly to the dovish side. But in speeches from the likes of Breman, Jansson and governor Thedeen as recent as Friday and today (Thedeen again), Riksbank officials are increasingly paying attention to the risk of major central banks such as the ECB and especially the Fed delaying the cutting cycle. Thedeen today explicitly noted the need to focus on krona effects coming from a strong US dollar, referring to the possibility of a weaker SEK bringing unwanted inflation. He also called for a cautious approach when the central bank eventually does kick off the easing cycle, saying he wants to avoid a demand boost that could potentially reignite inflation too.

The Kingdom of Belgium announced it intends to issue a new syndicated euro benchmark bond in the near future, most likely tomorrow. The new OLO102 will carry a five year maturity (22/10/2029) and is the last syndicated benchmark deal for the year. The two previous ones were issued in January (€7 bn) and February (€5 bn) with a 10-year and 30-year tenor respectively. Belgium plans to raise €41 bn through OLOs this year of which it printed €17.785bn (43.38%) so far. The Kingdom last Friday launched its first USD benchmark deal (10/06/2055) since 2020. The inaugural 30-year transaction falls under the EMTN programme (a €2bn envelope) and successfully raised $1.25 bn.