Markets
This morning we wrote: “The dollar holds the better cards against both the euro and the pound. EUR/USD is nearing the 1.07 pivot again and GBP/USD holds close to 1.25 this morning. Which will break first?” Well, both, it turned out. A clearer than ever divergent path between the Fed and ECB specifically weighs on the euro. Collins (Boston Fed) picked up on her speech yesterday, adding this time that she only expects two cuts (instead of the three she probably forecasted in the March dot plot). ECB governor Stournaras this morning explicitly made the case for Frankfurt to go solo slim. He sees risks that inflation may undershoot the 2% target while the current monetary policy stance could undermine the economic recovery. A few more sessions like today’s and the former could be the least of Stournaras’ worries. EUR/USD tanked from 1.073 to 1.064, piercing through the 1.0695 support (previous 2024 low). Apart from 1.0611 (76.4% retracement on the 2023Q4 rally), the road to the 2023 low of 1.0448 is free of any obstacle. Cable (GBP/USD) succumbed to gravity. It lost the 1.25 mark with a technical acceleration lower kicking in afterwards. Filling offers around 1.2456, the pair hit a new 2024 low-point and risks losing the 50% retracement (of the October-March ascent) support area as well. The likes of BoE’s Greene over the past few days joined her hawkish colleagues Mann and Haskel in pushing back against the market’s too optimistic rate cut bets. It didn’t help against the almighty USD but EUR/GBP did slip to the lowest level in a month before paring some of the losses again. Speaking of king dollar, DXY is attacking the 106 big figure, the highest level since mid-November. JPY is the only G10 currency outperforming the dollar (USD/JPY 152.83). A steep decline in core bond yields comes an ailing yen to the rescue.
Core bonds indeed rally today. German Bunds outperform peers, probably finding support in Stournaras’ comments as well. Yields drop between 11.3 and 13.4 bps with the belly of the curve outperforming the wings. Treasury yields return some of the sharp gains earlier this week, shedding 7.8 to 9.2 bps in a curve shift similar to Germany. As things stand, the 10y yield won’t close the week above the 4.54% resistance. UK gilt yields drop more or less the same as their US counterparts. Reports of Israel preparing for a potential direct attack from Iran triggered increased core bond buying with investors seeking safety ahead of what could be an explosive weekend. The possible geopolitical escalation left stamps on other markets as well. Stocks temporarily switched from gains to losses in Europe. The EuroStoxx50 still manages to eke out a 0.2% gain. Wall Street opens up to 0.8% lower. Oil prices jumped to $91.7/b and is on track for the highest close since mid-October.
News & Views
Swedish inflation slowed to 0.1% M/M in March, both for the headline figure and for the gauge using a fixed interest rate (CPIF; Riksbank’s preferred gauge). CPIF excluding energy even stabilized on a monthly basis whereas consensus feared an acceleration for different inflation measures to 0.3% or 0.4% M/M. As a result, Y/Y-figures slowed more than forecast on a top level (4.1% Y/Y from 4.5%), using the fixed rate (2.2% Y/Y from 2.5%) and excluding energy (2.9% Y/Y from 3.5%). The monthly change in March was due to increased prices of electricity (+1.8%), (+2.6%) and transport services (+2.7%) while simultaneously, food prices fell (-0.8%). Furthermore, there were price decreases in recreation and culture (-1.3%), partly due to the yearly book sale. Today’s data strengthen the idea that the Swedish Riksbank can cut its policy rate for a first time already at its next, May, meeting. SEK swap rates drop around 15 bps across the curve today, outperforming the global market move. EUR/SEK is testing the YTD high at 11.60 in spite of genuine euro weakness.
Vietnam’s largest shipper of coffee, Intimex Group, expects coffee exports in 2023-24 to be lower than last year at 1.5mn tons. The nation has enough beans to cover exports for the rest of the season, but some farmers may continue limiting sales as they hold out for higher prices. Prices for Robusta coffee climbed to a fresh record with the arabica version advancing to the highest level since September 2022. Apart from restrained supply, the coffee markets is also rumoured to be supported from hedge funds switching from the cocoa market to the coffee one.
