Sunset Market Commentary

Markets

ECB’s Stournaras this morning hijacked the headlines. The Greek governor said rates need to be cut soon: twice before the summer break (in August) and twice before the end of the year. He expects the first one to happen in June. Dutch hawk Knot sided with his Greek colleague insofar he is penciling in June for the kick-off. He refrained from giving guidance for the meetings thereafter though. Chief economist Lane held a more neutral approach, sticking to Lagarde’s message last week that a lot more data (including about wages) will be available at this potentially pivotal June meeting. While calls for ECB cuts in 2024 grow louder and bolder, a different scenario is panning out in front of the Fed. February producer price inflation easily topped forecasts across the board. The headline figure came in at 0.6% m/m, double the 0.3% consensus. The narrowest core gauge (ex. food, energy and trade) rose 0.4%. Year-on-year readings (between 1.6% – 2.8%) added more evidence to a bottoming out process that started somewhere end of last year. Weekly jobless claims meanwhile surprised to the downside. Applications for unemployment benefits last week dropped to a low 209k, from a downwardly revised 210k. Retail sales in February didn’t live up to expectations to more or less overcome the January dip. But with the broader (labour market) picture nicely intact, that didn’t prevent core bond yields from adding between 4.4 and 8.6 bps in the US. The 2-y and 10-y yield are single-digit bps away from their YtD highs. German yields add 2.6 (2-y) to 5.3 (10-y) bps in sympathy though one starts to wonder how much longer the front-end can join the US trend when ECB members continue to talk so openly about cuts. Either way, most tenors in Germany are also closing in on their YtD highs.

The dollar, for the first time since long, finally starts profiting from favourable interest rate differentials and a weakish risk environment (stocks slightly down in the US). EUR/USD slips from an intraday high of 1.0955 to currently test the 1.09 big figure. DXY (trade-weighted) found support at the 50% retracement on the December-February rebound (102.8) before moving beyond 103. USD/JPY and EUR/JPY parted ways with the former rising to 148 but the latter easing a few ticks to 161.5. The Japanese newspaper Jiji reported the BoJ is poised to end negative rates at its meeting next week, though adding that tomorrow’s wage negotiation results play a key role in the final decision. Sterling holds the upper hand against most G10 peers, including the euro (but not the USD). EUR/GBP snapped a three-day winning streak by erasing yesterday’s gains (0.8541).

News & Views

Swedish inflation rose by 0.2% on a monthly basis, both at the top level and the underlying one. Markets anticipated increases by 0.4% and 0.3% respectively. Headline inflation slowed more than expected on an annual level (4.5% from 5.4% vs 4.7% consensus) and for the core gauge using fixed interest rates for household mortgages (CPIF; the Riksbank’s preferred one): 3.5% from 4.4%. That’s less than the Swedish central bank predicted back in November (3.7%). Lower electricity prices contributed to decreased housing costs according to Statistics Sweden. Actual rents for housing still rose though. Furthermore, there were seasonally normal price rises for clothing. There were also price increases in fuel, recreational and cultural services, as well as for restaurant and hotel visits. Today’s data strengthen the Riksbank’s message that they will start cutting their policy rate in the first half of the year. The Swedish krone underperforms today with EUR/SEK rising to 11.23 following an intensive test of 11.14 support at the end of last week.

The International Energy Agency changed its view on this year’s oil availability. They now join OPEC+’s warning of an oil supply deficit throughout the year. The IEA upped its world oil demand growth forecasts by 110k barrels to 1.3mn b/day on a stronger US outlook and increased demand for ship fuel over problems in the Panama canal (climate) and the Suez canal (Houthi attacks). Simultaneously they now believe that OPEC+ could continue output cuts in the second half of the year. Brent crude prices rise for a second straight session, taking out $85/b for the first time since the end of October of last year.