Markets
Economic growth stood in the spotlights today. The IMF in its quarterly World Economic Outlook raised the global forecast from 2.9% to 3.1% this year while keeping the 2025 estimate at 3.2%. The chief economist of the Washington-based institute said “The global economy continues to display remarkable resilience, and we are now in the final descent toward a soft landing with inflation declining steadily and growth holding up”. Global inflation is seen slowing from 6.8% to 4.4% this year, allowing the likes of the Fed, ECB and BoE to start cutting rates but only from 2024H2 on. The US (2.1%), China (4.6%) and Russia (2.6%) saw some of the biggest growth upgrades. The euro area was among the losers (0.9%) thanks to Germany and France. The latter are struggling indeed, according to Q4 GDP numbers released today. A lackluster French (flat) and German (-0.3%) performance was more than made up for by Italy, Spain and Portugal, though. Growing 0.2%, 0.6% and a very solid 0.8% respectively, southern European outperformance helped the European-wide economy narrowly avoid a technical recession in 2023H2. GDP stagnated instead of shrinking by a back-to-back -0.1% that analysts put forward. The first EU member states also published January inflation figures. Belgian CPI (national calculations) accelerated by 0.49% m/m to 1.75% y/y (see below). Spanish HICP fell 0.2% m/m, less than the 0.6% expected, bringing the yearly gauge from 3.3% to 3.5%. After a sharp drop from July 2022 to June 2023, Spanish y/y HICP inflation has fluctuated between above 3.3% and 3.5% since September last year. It’s the paella-loving country that set the tone for European/German bond markets. Bunds opened higher but pared all gains and more after the Spanish data was released. Current changes amount to <2 bps across the curve with the 7 bps drop in the 2-y being a benchmark change. US Treasuries simultaneously left their intraday highs behind but the move there lacked conviction. Yields currently ease 1.6-3.2 bps.
On currency markets, sterling displayed some of the sharpest moves. EUR/GBP rebounded from as low as 0.8517 to 0.8564 before paring some of the gains again to 0.8545 currently. We didn’t see a specific trigger and assume it was mainly a technically driven sprint. Indeed, the pair over the course of January neared the lower bound of a sideways trading range in place since May last year. A break lower was bound to be tricky given the looming Bank of England meeting (inc. new forecasts) on Thursday. Other FX pairs trade muted. EUR/USD sticks around 1.084. JPY hovers near its recent lows. The Hungarian forint is leading Central-European peers. The central bank backtracked on earlier guidance from deputy governor Virag and stuck to a 75 bps cutting pace (to 10%). Virag noted inflation was declining faster than expected, creating room for bigger (100 bps) cuts. Since then, however, the forint fell sharply amid rising tensions between Orban and the EC and concerns about Hungary missing out on billions of EU funding. Financial & forint stability is considered essential by the central bank, so it opted for caution today. The approach brings some relief to the forint with EUR/HUF easing from 390+ to 387.4 currently.
News & Views
Belgian inflation rose by 0.49% M/M in January with the Y/Y-figure accelerating for a third consecutive month, from 1.35% to 1.75%. The most significant price increases in January concerned dairy products, domestic services, bread and cereals, alcoholic beverages and rents. Natural gas, motor fuels, plane tickets, electricity and hotel rooms had a decreasing effect on the index. Food inflation slid for 10th consecutive time from 7.03% Y/Y to 6.58%. Energy inflation is negative for almost a year now at -22.3% Y/Y. Underlying core inflation, correcting for energy products and unprocessed food, decreased for the 8th month in a row from 5.47% Y/Y in December to 4.7%. Service inflation declined from 6.44% Y/Y to 5.15%, but inflation for rents increased from 5.57% Y/Y to 5.91%.
The Saudi government announced a change in investment plans for Saudi Aramco, the Kingdom’s state-owned oil and gas producer. They abandoned a plan to lift output capacity from the current 12 million barrels a day to about 13 mn by 2027. The move is seen as a potential harbinger of a U-turn of global oil demand forecasts by Saudi Arabia (and by OPEC+) especially given that the Kingdom is currently producing ‘only’ 9 million barrels a day given production output cuts. Brent crude prices slide today from around $82.5/b to $81.5/b.
