Markets
The main ‘news’ for (global) trading was already available from the BoJ policy decision early this morning. However, the impact especially on global bond markets was close to non-existent. The Bank left the parameters of its policy (-0.1% policy rate, 0.0% target for the 10-y yield with an allowed deviation of 1.0%), unchanged. The Bank downwardly revised its projection for inflation in fiscal 2024 (2.8 to 2.4%) but grew slightly more confident that inflation might sustainably move to the target over the policy horizon (2025 forecast from 1.7% to 1.8%). The ongoing wage negotiations will be key to decide whether the BOJ can leave the era of negative interest rates behind. A assessment might come at the April meeting (or later in spring). Japanese bond yields reversed an initial decline. The 10-y yield closed marginally higher (+1.3 bps at 0.67%). However, the prospect on real BOJ normalization remains too diffuse to have any impact on global markets for now. Similar story for the yen. The Japanese currency tried to rally after Ueda’s press conference, but there is to little hard evidence on timing and the degree of potential BOJ normalization going forward. USD/JPY briefly dropped to the 147 area to again trade little changed near 148.
Very few data in the EMU and the US today, with the ECB January lending survey the exception to the rule. The report showed a moderate further tightening of credit standards for loans to firms. Banks also reported a further net tightening of their credit standards for loans to households. This was small for loans for house purchases and more pronounced for consumer credit and other lending to households. Demand for loans by firms and households also continued to decrease substantially, albeit less steeply than in the previous quarter. The data suggest that ECB policy is further filtering through into the economy. However, it looks that the sharpest tightening might be behind as the ECB as finalized its rate hike cycle. We don’t draw too firm conclusions, but if credit providing to the economy stabilizes due to markets anticipating some ECB easing further down the road this, ceteris paribus, leaves the ECB room to keep a wait-and-see approach with no need to rush to preemptively ease policy. Whatever, the impact on markets was limited. German yields are changing between 0.5 bps (2-y) and +5 bps (30-y), with the rise mainly starting after US traders joined. In technical trading, US yields show a similar steepening move (2-y +1.5 bps; 30-y +4.5 bps) counting down to tomorrow’s PMI’s and Thursday’s GDP release. The rally in equity markets is taking a breather, but there are no signs yet of change in trend (Eurostoxx 50 -0.35%, S&P little changed at the open). EUR/USD showed some intraday swings, with the dollar winning on points. The EUR/USD 1.085 support area is again coming on the radar (currently 1.086). EUR/GBP is extensively testing the 0.855 support area.
News & Views
Hungary’s Ministry of Economy suggested replacing the reference rate used in bank lending for the yield on Treasury Bills. Commercial banks currently add a margin to the Bubor interbank rate in determining the interest rate for loans. There is, however, a spread of more than 200 bps over yields on T-bills with the same tenor. Switching the reference would thus basically come down to significant easier financial conditions, typically the domain of the Hungarian central bank. The latter has been lowering policy rates steadily and is even eying bigger steps from next week on (100 bps) due to favourable inflation outcomes in recent months. But Economy Minister Nagy, amongst others, has lashed out several times already about real interest rates being too high and choking off the economy. The Hungarian forint extended losses after the report hit the wires, joining a regional move lower but underperforming peers. EUR/HUF is testing recent highs in the 385 zone.
In a draft document seen by the Financial Times, the European Commission estimated that the EU must invest about €1.5 trillion per year between 2031 and 2050 if it wants to cut greenhouse gas emissions by 90% by 2040 and reach net zero by the middle of the century. It’s an enormous amount that would nevertheless outweigh the cost of inaction as the effects of global warming become increasingly apparent through extreme weather events, the document explained. The numbers come in addition to the Commission’s estimation of an annual €360bn investments needed to reach the bloc’s 2030 goal, which include a legally-binding interim target of 55% reduction of greenhouse gases.
