Markets
European investors had some catching up to do with the US, returning from the long Easter weekend. Last Friday’s US payrolls were the main event. They printed near consensus instead of the feared and positioned-for downward surprise after earlier below-consensus ISM’s, ADP employment and JOLTS. That way, payrolls avoided a break of key support levels in US yields. The US 2-yr yield returned to 4%. The US 10-yr yield bounced off 3.28% to currently trade around 10 bps higher. German Bunds thus underperform US Treasuries today with yields adding 8.8 bps (30-yr) to 14.8 bps (2-yr). US yield are merely flat across the curve. The 10-yr Bund-swap spread drops below 65 bps for the first time since the collapse of Silicon Valley Bank in a sign that market stress levels are receding. In the same vein, the VIX index (expected volatility of S&P 500) since last week trades back near YTD lows. Key European stock indices gain 0.5% to 1% today with the EuroStoxx50 for example testing the YTD top at 4347. Sentiment is dwindling going into the start of US trading though. Positive risk vibes are responsible for EUR/USD’s return above 1.09 as well. EUR/GBP holds within this month’s extremely narrow trading range between roughly 0.8750 and 0.88.
Today’s eco calendar was extremely thin with only outdated and at consensus February eurozone retail sales (-0.8% M/M). The IMF released its world economic outlook, subtitle “a rocky recovery”. It presents the bleakest growth outlook since 1990, as flagged by chief Georgieva last week. The baseline forecast is for growth to fall from 3.4% in 2022 to 2.8% in 2023 (from 2.9% in January), before settling at 3% in 2024 (from 3.1%). Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7% in 2022 to 1.3% in 2023. In a plausible alternative scenario, stressing downside risks to the base case, with further financial sector stress, global growth declines to about 2.5% in 2023 with advanced economy growth falling below 1%. Global headline inflation in the baseline is set to fall from 8.7% in 2022 to 7% in 2023 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly. Inflation’s return to target is unlikely before 2025 in most cases. In an earlier released chapter on the natural rate of interest – the real rate that neither stimulates nor contracts the economy – analysis suggests that once the current inflationary episode has passed, interest rates are likely to revert toward pre-pandemic levels in advanced economies.
News & Views
Norwegian headline inflation unexpectedly picked up in pace last month. Rising by 0.8% m/m brought the yearly figure from 6.3% to 6.5%, defying analyst and Norges Bank estimates for a further slowdown to 6.1% and 6% respectively. Core inflation advanced 0.6% m/m, keeping the y/y measure (6.2%) close the series high of 6.4% (January 2023). The increase was driven by durables (furnishings, household equipment), transport and clothing. Given the upward surprise (again), the Norges Bank’s flagged rate hike for May (to 3.25%) is all but cemented. The central bank’s projected a 3.5% terminal rate but kept the option for going higher on the table in case of more stubborn inflation and/or a weaker-than-expected Norwegian krone. The latter isn’t providing much comfort to the NB today. EUR/NOK gets catapulted above recent highs of 11.48 to trade at 11.53 currently – the weakest NOK level since April 2020. Norwegian swap yields are roughly unchanged, moving between -0.4 bps and +0.8 bps.
Minutes from the previous Czech National Bank policy meeting showed broad-based resistance amongst policymakers to cut rates anytime soon, labelling it as “not on the horizon”. The formal guidance instead remains to either keep rates steady at 7% or hike further. The latter option is favoured by only one member, Tomas Holub. He sees “insufficiently tight monetary policy and inflation staying above the target next year as a far greater threat than the risk of excessively tight monetary policy.” Kubelkova said the risk of de-anchoring inflation expectations is growing over time and that it could play a more important role in future decision-making. CNB governor Michl and deputy governor Zamrazilova both repeated their preference for a strong Czech koruna. The currency today however fell prey to some profit-taking after approaching the March 2023/15-year high around 23.30 over the previous days. EUR/CZK currently rises from 23.36 to 23.50.
