Sunset Market Commentary

Markets

US President Trump easily beat his remaining contender in the Republican primaries, Nikki Haley, in her home state South Carolina this weekend. He cements his grip over the GOP and is gearing up for a duel against President Biden (?) in November elections. We assumed that Trump momentum and USD momentum would go hand in hand, but there’s little evidence of that so far. The reasoning is that a Trump election victory implies a hawkish foreign policy stance against the likes of China (CNY), Europe (EUR), Mexico (MXN),… Irrespective of domestic policies, USD could be by default winner if other currencies lose out in anticipation of another 4-yr term for The Donald. The trade-weighted greenback extends its correction lower today with DXY currently changing hands near 103.75 from an open just below 104. First support (last week’s low) stands at 103.43 with the 103-area providing more backing. EUR/USD rises from 1.0820 to currently 1.0860. The absence of eco data and central bank speeches warns against overinterpreting today’s action. German Bunds underperform US Treasuries with German yields 3 to 4 bps higher across the curve whereas US yields are almost unchanged. European stock markets tread water near last week’s cycle highs. Slovak debt agency Ardal announced the launch of its first syndicated deal of the year later this week (likely tomorrow). They will do a new 10-yr benchmark. YTD, they already raised the significant amount of €3.46 bn via regular auctions, which is a significant amount of this year’s projected funding need of (at least) €10bn.

Later this week, attention turns to PCE deflators in the US (Thursday), the Fed’s preferred inflation gauge. Despite strong expected m/m readings (0.3% headline, 0.4% core), the yearly figures should have eased further in January, be it only gradually (especially for the core gauge). CPI’s earlier this month, if any, suggest upside risks. February CPI in the euro area (Friday, after national readings in the run-up) could drop to 2.5% y/y even as monthly prices may jump a 0.6%. Strong negative base effects (which last through April) are the reason why. Similarly, core inflation is set for a drop sub 3%. Aside from some price data, the US manufacturing ISM is on tap on Friday. The latter is seen extending the bottoming out process that started in November (49.5 from 49.1) on inventory rebuilding and with some export partners showing new (export) momentum.

News & Views

The head of the World Trade Organization said trade volumes last year have probably fallen short of the 0.8% forecast made in October. Speaking during the WTO’s 13th biennial conference in Abu Dhabi, Ngozi Okonjo-Iweala added that the 3.3% projection made for 2024 (before the war between Hamas and Israel) may be too optimistic as well. She said that while global commerce proved resilient through the pandemic, is it now performing weaker than expected amid economic headwinds and a shift towards protectionism. While the US and India are “doing quite well”, the WTO president said demand is sluggish across most other major economies. Supply for its part is constrained by wars and climate-related problems including drought that is slowing down shipping through the Panama Canal.

European agricultural ministers urge the EU to increase the €60bn per year Common Agricultural Policy (CAP) subsidy scheme, the Financial Times reported quoting Ireland’s McConalogue and Belgium’s Clarinval. Calls for that are growing along with European-wide farmer protests which have flared up again today a.o. in Brussels. The CAP accounts for about a third (some €390bn) of the €1.21tn common budget (2021-2027). Increasing the amount either requires heated discussions about a shift in priorities or increase national contributions to obtain a larger budget. The latter is no easy task given how stretched government finances already are currently. Aside from more funds, farmers also demand a relaxation in environmental regulations and ask for several trade deals to be reconsidered, saying they allow cheap imports to undercut prices for domestic producers.