Sunset Market Commentary

Markets

Japanese stock markets and JPY still account for today’s biggest market move in a telling sign about current market momentum. The Nikkei closed slightly over 2% higher. USD/JPY sets a new YTD high at 149.40 with both the psychologic 150 mark and the 2022 (151.95) and 2023 (151.91) tops coming dangerously close. EUR/JPY escapes a narrow downward trend channel, rising to 160.50. It’s unlikely that this is what BoJ deputy governor Uchida had in mind when he spoke to local business leaders this morning. He advocated ending the negative interest rate policy, putting QE asset buying programmes (barely used of late) to bed and officially leaving the yield curve control policy (currently flexible cap of 1% at 10yr yield). While this trio of measures would be a big turn in BoJ monetary policy, Uchida also stressed that it is hard to imagine a path in which the BoJ would then keep raising interest rates rapidly. Financial conditions are set to remain easy. This “nuance” is what markets triggered into using their favoured JPY pressure tool: a weaker currency. Especially as USD and EUR profit (relatively) from a retreat in aggressive easing speculation. At the current weakening pace, it won’t take long before the Japanese Ministry of Finance turns to verbal (and effective?) FX interventions.

US weekly jobless claims were today’s sole data point of interest up until now (US 30-yr bond auction still to come). Unfortunately they printed almost bang in line with consensus at 218k. Central bank speeches didn’t deliver fireworks either. ECB Wunsch warns that wage rises are holding up rate cuts and that there’s value in waiting for more numbers. Richmond Fed Barkin joined the recent chorus to be patient on cutting rates as well. US yields currently add 1.5 bps (2-yr) to 3.9 bps (30-yr). German yields increase by 1.5 bps to 3 bps across the curve. General risk sentiment isn’t influenced yet by the spreading uncertainty over US (& European) bank exposure to US commercial real estate. The EuroStoxx50 rallies 0.8% to a new YTD/cycle high. Major US benchmarks open flattish. EUR/USD is trapped between 1.0750 and 1.08. In central Europe, the Czech National Bank accelerated from a 25 bps rate cut in December, to a 50 bps move today (to 6.25%). The Board voted 6-1 with one arguing for a 75 bps rate cut. The Czech currency is under new selling pressure with EUR/CZK rising above 25 for the first time since May last year.

News & Views

Riksbank Deputy Governor Jansson indicated that especially Swedish core inflation has recently fallen a little faster than expected. At the same time the economy continues to cool, reducing the risk of inflation becoming entrenched. This makes it possible to cut the policy rate earlier than indicated late last year. Still, monetary policy need to be characterized by caution. He doesn’t rule out a March cut, but sees it as not very likely. For now, it is more realistic to start cutting rates in May or June. Jansson doesn’t mention the currency as a risk for early rate cuts, unlike other MPC members including governor Thedeen in the minutes of the January meeting published yesterday. Despite the U-turn in the RB assessment, the krone recently held relatively stable (EUR/SEK .11.28).

The National Bank of Poland kept its policy rate unchanged at 5.75% yesterday. NBP governor Glapinski at the post meeting press conference (today) had a chance to give some insight on the NBP’s intentions going forward. Except for some small changes related to incoming data since the January meeting, the policy statement/assessment was almost identical to last meeting. The NBP sees inflation cooling. Especially headline inflation (6.2% Y/Y) might decline substantially in Q1 (2.5% in March) with slower progress seen for core inflation. However, the NBP still sees uncertainties related to regulatory and fiscal policy of the new government, with higher VAT, higher energy prices and (public) wage increases posing material upside risks for inflation in H2 (projection range of 3-8% by year end). Glapinski said that the NBP is committed to work with the government. The NBP statement sees the zloty now consistent with fundamentals and supporting the decrease in inflation. March projections should bring some more clarity. For now Glapinski still doesn’t see further rates cuts this year. EUR/PLN (4.33) declines modestly today.