Markets
The dust settled after yesterday’s violent sell-off in the US tech sector. Dip-buying already emerged during the day in certain individual companies. Others closed near or at their intraday lows only to be picked a day later. US indices as a whole kick off more or less unchanged though. Core bond yields recoup some marginal ground with Treasuries trading on par with German Bunds. Rates in both areas add between 2-3 bps across the curve. Some second-tier economic data failed to inspire. US durable goods unexpectedly dropped 2.2% on a monthly basis but that’s due to a 46% plunge in commercial aircraft orders. Stripping for such notoriously volatile items, core gauges printed much better. These include a 0.6% m/m gain in capital goods shipments that excludes military equipment and commercial aircraft (and as such gives a glimpse on GDP-related business investments). The ECB in Europe released its fourth-quarter Bank Lending Survey, offering some last-minute input to Thursday’s policy meeting. Banks reported a renewed net tightening of credit standards for company loans. The most pronounced tightening since 2023Q3 was driven by higher perceived risks related to the economic outlook and a lower risk tolerance, especially in France and Germany. Both suffered from heightened political uncertainty during the survey’s reference period. Banks expect a further tightening of standards in 2025Q1. Credit standards for household loans for house purchases were more or less unchanged after three quarters of easing with increased competition offsetting a lower risk tolerance. On the demand side, firms’ net demand for loans continued to increase but remained weak overall with little improvement expected in the running quarter. Demand for housing loans increased strongly again whereas other consumer credit demand picked up, be it only slightly. Both were supported by declining interest rates.
Currency markets are more or less a reversal of yesterday. The US dollar prints some of the biggest gains whereas JPY and CHF take a breather. Dollar strength was inspired by early-morning comments from president Trump. Treasury Secretary Bessent in the Financial Times is said to favour a step-by-step tariff approach, applying a 2.5% universal levy that increases by the same amount each month. Trump responded he wants “much bigger” tariffs than that. EUR/USD stumbles towards 1.043 & DXY tried to take out 108. USD/JPY is back above 155. Sterling is on track for a four-day winning streak. EUR/GBP tested support around 0.838.
News & Views
French consumer confidence rose from 89 to 92 in January, the highest level since October. Details showed consumers turning less pessimistic on their (future) personal financial situation and the standard of living. The reversal of some of the initial 2025 budget proposals played a role here. New PM Bayrou will likely face a no-confidence vote linked to that budget as soon as next week. In a similar vein, they turned slightly more optimistic on the likelihood of future unemployment (47 from 54). Indicators measuring savings capacity and purchasing opportunities remained unchanged.
The Hungarian central bank kept its policy rate as expected unchanged at 6.5% and vowed to keep it that way for a sustained period. Hungarian inflation rose more than expected in December (4.6% Y/Y) and will continue to rise in January. The MNB flags an increased risk of a higher inflation path this year with CPI returning to the tolerance band later than projected in the December inflation report. The council closely monitors pricing decisions in the services sector while household inflation expectations have been on an upward trend since July. Anchoring inflation expectations, preserving financial market stability, and a disciplined monetary policy are crucial for the consumer price index to return to the central bank target in a sustained manner. The MNB also calls for disciplined budget deficit targets to help improve Hungary’s risk perception. A careful and patient approach to monetary policy remains warranted. In the Council’s assessment, geopolitical tensions, a volatile financial market environment, and risks to the outlook for inflation warrant the maintenance of tight monetary conditions. They by far outweigh downside risks to the economy. On FX markets, the bottom below the Hungarian forint (EUR/HUF 415) is becoming stronger. The pair is trying to paint a technical double top with neckline support located around 406.50. A break below would improve the short term technical picture of the forint.
