Markets
Markets don’t have that much to thrive on. The geopolitical “fake news” accusations in both directions lose impact as market worry. Upheaval in the Luhansk region this morning triggered a risk-off spike in thin Asian dealings, but moves are mostly reversed during European dealings. Main equity indices lose around 0.5%-1%. Core bonds are in consolidation modus. We argued before that the second half of February offered some potential relief to this year’s aggressive sell-off. Markets are positioned for a fierce normalization process (especially in the US and the UK) and lack new guidance between last week’s US CPI data and fresh numbers early March (new CPI batches & US payrolls). Pivotal monetary policy meetings are scheduled for March 10 (ECB) and 16 (Fed). US yields lose 1.9 bps (2-yr) to 4.6 bps (7-yr) today with the belly of the curve outperforming the wings. The US 10-yr yield returns below 2% after extensively testing the 2.06% recovery top. First support comes in near 1.9%. Changes on the German curve vary between -1 bp (30-yr) and -2.4 bps (5-yr). 10-yr yield spread changes vs Germany narrow by up to 4 bps for Italy. UK Gilts continue their outperformance at the front end of the curve (2-yr -7.5 bps today). It’s a complete reversal of Monday’s huge underperformance (2-yr: +15 bps). It’s hard to pinpoint a specific driver behind this week’s dynamics as we didn’t see any BoE comments. Markets potentially ran ahead of themselves going into this week’s UK eco data. Labour market numbers and inflation figures confirmed the BoE’s normalization efforts, but printed all in all near consensus. This could have triggered some scaling down of to tight monetary policy bets. The UK currency is in any case unnerved by the lost of interest rate support today. Sterling outperforms the euro and the dollar for a second session straight with EUR/GBP sliding from 0.8375 towards 0.8340. EUR/USD trades choppy around 1.1360. Today’s eco calendar included mixed US housing data (housing starts unexpectedly fell by 4.1% M/M while building permits significantly beat consensus at 0.7% M/M), and unforeseen increase in weekly jobless claims (248k from 225k). The February Philly Fed Business Outlook declined from 23.2 to 16 (vs 20 consensus). Details showed a broad-based moderation (incl. price pressure) with rising employment & workweek exception to the rule.
News Headlines
In a monthly survey conducted by Kantor Sifo Prospera and commissioned by the Swedish Riksnank, Swedish money markets participants slightly upwardly revised their expectations for the CPIF inflation from 2.0% to 2.1% in 5-yr. Expectations for 1-yr and 2-yr were also upwardly revised to respectively 2.4% and 2.1%. Expectations for the repo rate were upwardly revised to 0.1% in 12 months and 0.5% in 24 months. At its policy meeting on February 10, the Riksbank still held an very accommodative monetary policy stance even as CPIF inflation printed at 4.1% in January. The central bank slightly brought forward its indication for a first rate hike but this still is only expected for the second half of 2024. The Swedish koruna lost further ground this week in the wake of last week’s Riksbank meeting. Today’s survey didn’t help. EUR/SEK trades in the 10.60 area.
After reducing the policy rate 500 bps from 19% to 14% between September and December, the Turkish central bank (CBRT) kept is policy rate unchanged for the third consecutive meeting. The outcome was expected even as the headline inflation in January rose further to 48.7%, leaving the real policy rate at an astonishing -35%. In its communiqué the CBRT repeats that current high inflation is still driven by factors that are not supported by economic fundaments. With respect to recent policy measures, the CBRT expects that the comprehensive review of the policy framework that aims to encourage a permanent lirazation will create a foundation for sustainable price stability. The CBRT also hopes that an expected current account surplus in 2022 will be important to contribute to price stability. ‘The Committee expects the disinflation process to start on the back of measures taken and decisively pursued for sustainable price and financial stability along with the decline in inflation owing to the base effect’. The reaction of the lira to the policy decision was limited. The lira eases slightly with EUR/TRY trading near 15.50.
