Markets
At the start of trading this morning, key question was whether the calm that gradually returned to markets last week, would again be overthrown by a new ‘event risk’ as OPEC+ this weekend surprised with an additional 1.1 mln bpd oil production cut. After an initial jump to $86 b/p, Brent oil during the European session tentatively found a new equilibrium near $84/85 p/b. As was the case in Asia, the reaction on European equity markets was modest. The EuroStoxx 50 currently trades little changed, holding within reach of the early March top north of 4300. So, the OPEC decision didn’t trigger a hard, outright risk-off repositioning. US indices also maintained most of Friday’s solid gains. To put things in perspective, at $84 p/b, Brent trades well off the levels near $70 from two weeks ago. However, it is still perfectly in the sideways trading range that dominated trading between mid-November and early March. Still, interest rate markets apparently give some more weight to the impact on inflation rather than on potential negative consequences for growth. US and German yields this morning rose up to 7/8 bps. Especially the rise in European yields lost some momentum intraday. German yields are gaining between 5 bps (2-y) and little changed bps (30-y). The German 10-y yield stays below the 2.40% resistance. The 2-y came within reach of the 2.77/83 recent peak levels, but no new test occurred. European money markets almost fully discount an additional 25 bps ECB hike in May and see the peak rate (slightly) above 3.5% in summer. US Treasuries slightly underperform Bunds with US yields rising between 7 bps (2-y) and 2.5 bps (30-y). After finishing this report, the US manufacturing ISM will still be published. (Some) activity indices might be negatively affect by the financial turmoil. However, as this is gradually moving to the back ground, we are cautious to draw any firm conclusions anyway.
In Asia this morning it looked that dollar could become a beneficiary of the OPEC story. DXY briefly surpassed the 103 level at the start of European dealings. However, as the broader market reaction stay modest and orderly, new USD selling kicked in. The index already more than reversed initially gains (currently 102.4 area). Similar story for EUR/USD. The pair briefly tested bids below 1.08 this morning, but is again changing hands near 1.088. The yen underperformance in Asia is also largely undone with USD/JPY (133.0) trading little changed compared to Friday’s close. Oil and commodity related currencies including the Canadian dollar (USD/CAD 1.345) and the Norwegian krone (EUR/NOK 11.25 from 11.356 close on Friday), the Aussie dollar (AUD/USD 0.677 from 0.6685) and to a lesser extent the kiwi dollar (0.628) are today’s outperformers. CE currencies again show remarkable strength (EUR/PLN 4.669, EUR/HUF 379.0). At EUR/CZK 23.45, the Czech krona even nears the early March multi-year peak.
News Headlines
Swiss inflation rose by 0.2% m/m in March, bringing the yearly figure down from 3.4% to 2.9%, Federal Statistical Office data showed today. The data surprised to the downside (3.2% y/y expected). Core inflation eased from 2.4% to 2.2%, defying a 2.5% consensus estimate. The biggest contributors to the monthly advance were, amongst others, international package holidays, air transport and fruiting vegetables. The biggest monthly drops were seen in supplementary accommodation, heating oil and berries. While inflation is still above the Swiss National Bank’s 2% inflation target, the downward surprise and especially the unexpected deceleration in core inflation does trigger a kneejerk downleg in Swiss swap yields today. The front end of the curve drops up to 4 bps and more. The long end adds more than 3 bps. The Swiss franc loses some territory with EUR/CHF advancing from 0.992 to 0.995.
Inflation in Turkey fell more than expected, but that’s about it. At 50.51% (vs 51.25% anticipated) from 55.18%, prices still rise at a stupendously fast pace and at tenfold the central bank’s target. Monthly readings are still well above 2%. Core inflation decelerated from 50.58% to 47.36%, in line with the analyst estimate. The slowdown is largely an energy story and risks are that it may stop soon anyway. Fiscal spending in the aftermath of the earthquake is unlikely to end before the presidential elections on May 14. Meanwhile, monetary policy is extremely easy. With rates at 8.5%, real rates are well below zero. And as the Turkish lira continues to depreciate to ever new lows, imported inflation will continue to rise. The lira loses again today. EUR/TRY left intraday lows at around 20.69 to trade at 20.89 currently. USD/TRY is on track for a new record high close (19.20).
