Markets
It would be an exaggeration to already label it the start of a short term comeback, but the single currency at least isn’t losing out against other majors today. The intraday move is most visible against the Japanese yen (129.60 from 129) but lacks any technical relevance. EUR/GBP switches sides again around the 0.84 big figure. Media the past days hinted that the UK is looking for a trade truce around the Christmas period with top EU officials confirming a less hawkish tone from across the Channel. These improve the mood around negotiations on the Northern-Ireland Protocol, but fail giving sterling another push in the back. The UK wants checks removed or at least weakened on trade between Northern Ireland and the UK while also hoping to scrap some red tape on trade with EU and wishfully thinking that ECJ will no longer be the place to go to in case of disputes. EUR/USD carefully moved towards 1.1350 during the European session, but the dollar shows willingness to take back control as US investors enter the arena. US eco data provide an explanation. Weekly jobless claims as expected stabilized near post-pandemic lows (268k) and the November Philly Fed business outlook comfortably beat expectations (39 from 23.8 vs 24 expected). It’s the best reading since April and a copy-paste of the forecast-smashing NY survey earlier this week. Details show very strong new orders and shipments. The rise in unfilled orders and prices, longer delivery time, decline in employment and drop in inventories all point in the direction of lack of material and personnel. The 6-month forward looking sentiment indicator continues its rebound from the September low. US Treasuries underperformed German Bunds following the data releases. US yields add 0.8 bps to 1.8 bps with the belly of the curve underperforming the wings. German yields lose 0.5 bps to 3 bps with the belly of the curve underperforming as well.
On other markets, Brent crude rebounded higher after testing the $80/b neckline of a double top formation with targets around $74/b. The test came after the US called on countries like China, Japan and India to release some of their strategic oil reserves to help stabilize the market. Earlier US attempts to persuade OPEC+ into upping production faster than planned failed. European stock markets started on a positive note, but showed signs of fatigue afterwards, currently trading up to 0.5% lower. US stock markets opened mixed.
News Headlines
The Turkish central bank lowered policy rates from 16% to 15%. With the latest inflation coming in at almost 20% for October, real policy rates are deeply negative. This is a major drag for the Turkish currency that’s already losing (external) investor appeal by the day. Friend and foe label the CBRT’s recent string of rate cuts (from 19% to 15%) as policy mistakes that spurs prices further via a lower real rate – weaker lira – higher inflation doom loop. In practice, the central bank is just implementing Erdoganomics. The Turkish currency briefly clung on to the CBRT hinting at a rate cut pause in December but that didn’t last long. It loses 4.5% vs. the EUR and USD with new record highs at EUR/TRY 12.6 and USD/TRY at 11.1.
At its policy meeting two days ago, the Hungarian central bank raised the benchmark rate 30 bps to 2.10%. It then announced a series of technical measures to tighten policy further, one of them the reintroduction of a one-week deposit rate with a rate higher than the benchmark’s. The MNB today raised the rate on that deposit facility with 70 bps to 2.5%. The central bank used this liquidity-extracting tool in September 2020 – June 2021 to address the structurally weak forint (which helped cause inflation). EUR/HUF back then fluctuated between EUR/HUF 355-370. The pair today finds itself since October in a similar trading range. While the spread between the one-week depo and benchmark rate is almost triple the size last time around (15 bps), it does little to support the HUF. A brief strengthening completely reversed back to EUR/HUF 364.2 currently.
