Markets
The absence of US traders in observance of Martin Luther King Day took the sting out of today’s EMU trading action. Especially since the main dish was served during Asian trading hours with monthly Chinese activity data and quarterly GDP figures. Data pointed in the direction of further waning growth momentum. The PBOC anticipated the numbers by unexpectedly cutting key policy rates for the first time since April 2020 (7d reverse repo and 1y lending facility) by 10 bps to respectively 2.1% and 2.85%. It prompted an outperformance of main Chinese equity indices (+1-1.5%). Main European benchmarks enjoyed the risk rally and currently gain 0.5% to 0.7%. EUR/USD fluctuates in low 1.14 area. German Bunds continue to trade near Friday’s sell-off lows. Daily changes range between +0.5 bps and +1.1 bp across the curve. The German 10y yield thus remains near the recovery high of -0.02%. The technical picture in the EU 10y swap rate looks even better. It broke the 2021 recovery high (0.33%) early January to bump into 0.40% resistance (50% retracement on 2018-2019) decline. A correction lower didn’t go below resistance-turned-support at 0.33% with the key swap gauge back at 0.40%. A break higher paves the way to 62% retracement on that 2018-2019 decline at 0.59%. This week’s key event from a European point of view could for once be the normally dull Minutes of the ECB meeting, published on Thursday. Recall US markets’ reaction after the release of the December Minutes. The ECB back then decided to put PEPP to bed after March 2022 and to temporarily bump APP in Q2 (€40bn/month) and Q3 (€30bn/month). We assume Lagarde used her finest negotiations skills to craft this deal and markets will be interested in more hawkish floated alternatives in line of rapidly evolving market developments.
The Kingdom of Belgium intends to launch a new 10y benchmark (OLO 94 June2032). The Belgian debt agency for this year projects a €48.28bn gross financing requirement. This covers a €18.34bn deficit (net financing), €27.59bn maturing debt and €1.84bn of planned buy-backs. Gross borrowing is up 10% compared to last year. The substantially higher debt redemptions compensate for a 25% lower cash deficit. In 2023, these redemptions should decline to €21.6bn. The bulk of the funding will be raised through OLO’s for an amount of €41.20bn (up to 3 planned syndications). EMTN & Schuldscheine programmes (€3bn) and an increase in short-term debt fill the remaining gap. Belgium will no longer fund via (SURE) EU loans.
News Headlines
Norwegian Exports in 2021 hit a record high value of NOK 1377.8 bn, raising the amount of total exports by about 77% compared to 2020. This strong export performance resulted in a record trade surplus of NOK 531bn for the year. The rise was mainly driven by higher energy prices. The value of natural gas exports more than quadrupled to NOK 478.8 bn. Revenues of oil exports reached the highest level since 2008 (NOK 349.6 bn). However, the strong Norwegian export performance was visible as well in mainland exports which also hit an all-time record (+22% from 2020). This was due to strong exports in oil related products, metals and energy, but fish exports also hit an all-time high. The Norwegian krone remains well bid with EUR/NOK returning below 10. The Norwegian central bank raised its policy rate from 0.25% to 0.50% in December. It meets again on Thursday but a next hike is only expected at the March 24 policy meeting when a new monetary policy report will be available.
December Polish inflation earlier this month printed at 0.9% m/m and 8.6% y/y. Today, the National Bank of Poland published its monthly analysis of the drivers for (core) inflation. Core inflation net of food and energy prices rose further by 0.4% M/M and 5.3% Y/Y (from 4.7% in November). The core number excluding the most volatile items still accelerated 0.7% M/M and 6.7% Y/Y. Last week, the Polish government announced a series of measures including VAT cuts on selected products for six months starting February 1 to cap price rises for Polish citizens. The zloty today extended gains. EUR/PLN is trading near 4.52, the strongest level for the zloty since September last year.
