Markets
A dull start in Asian and European trading in the US gradually morphed in to a risk-off pattern. A lukewarm acceptance of strong Nvidia results apparently caused some vertigo, preventing especially US equity indices to go for a retest of the top levels reached end last month. The Dow closed little changed (-0.3%). The Nasdaq dropped 1.18%. Hesitance on US equity markets again directed a safe haven bid to US Treasuries. Treasury yields dropped between 5.3 bps (5-y) and 4 bps (30-y). Comforting (from a Fed point of view) US weekly jobless claims (212k) in this respect had no impact on the intraday dynamics on US interest rate markets. Especially US yields in the 2y-5y sector are now closing in on important support levels (October lows). The 10-y this morning is attacking the 4% barrier. EMU yield followed the US at a distance with German yields easing between 0.6 bp (2-y) and 2.2 bps (30-y), also in a bull flattening move. ECB’s Lagarde in a speech before the EU Parliament elaborating on still elevated consumer inflation expectations despite recent decline in (headline) inflation at least suggests that the bank is in no hurry to change is wait-and-see stance. Neither the risk-off nor the changes in interest rates (differentials) in the end had a big impact on the dollar. EUR/USD rebounded off intraday lows near 1.1775 to close near the 1.18 big figure. USD/JPY finished slightly lower (156.1) as the debate on (the timing of) further normalization between the BOJ and the government continues. Oil showed quite some intraday volatility but holds near $71 (Brent) as the US and Iran indicated to continue talks on Iran’s nuclear program next week.
Asian equities this morning again show a mixed picture, holding up reasonably well given the correction in the Nasdaq yesterday. The Chinese central bank (PBOC) removed a 20% reserve requirement on FX forward contracts, lowering the cost of shorting the yuan in an apparent move to slow recent sharp (and this week even accelerating) rise of the currency. USD/CNY ‘rebounds’ to 6.8575. In the UK, the Green party winning the special election in an Manchester area (Labour dropped to third place after the Reform UK party) again raised questions on PM Starmer’s position adding to broader political (and policy) uncertainty. Sterling’s performance this morning is a first barometer. EUR/GBP is attacking to key 0.8745/50 resistance area. A break at least would be significant from a technical point of view. We also keep an eye on UK gilts, which performed ‘remarkably’ well this month (and also yesterday). Later today, national CPI data will be published in Spain, Germany and France, giving a hint for next Tuesday’s EMU flash release (expected near the January levels). Also the ECB January inflation expectations survey, might get some more attention that is usually the case after Lagarde’s comments yesterday. In the US, January PPI data maybe are a bit outdated. The Chicago PMI frontruns the traditional US early month data update next week. We keep a close eye at US yields closing in on key support levels (cf supra). This weekend, OEPC+ on Sunday will hold a video conference discussing output levels (increases?) for April (and beyond).
News & Views
Tokyo’s headline price level fell by 0.4% M/M in February, with the annual print grinding slightly higher from 1.5% to 1.6%. Core inflation, ex fresh food declined by 0.3% M/M with the Y/Y-figure falling below the BoJ’s 2% inflation target (1.8% from 2%) for the first time since October 2024. A significant plunge in energy prices because of subsidies to support households with rising costs of living pulled utility prices 9.2% M/M and 6.6% Y/Y lower. Core inflation filtering out both fresh food and energy prices increased by 0.3% M/M and ticked up from 2.4% Y/Y to 2.5% Y/Y. Service price inflation rose by 1.5% Y/Y, up from 1.4%. National inflation numbers for the month of February will only be published on March 24. These “sticky” details should keep the Bank of Japan on course to extend its tightening cycle throughout this year. Money markets attach a 70% probability to a rate hike from 0.75% to 1% at the April meeting when the central bank updates its growth and inflation forecast.
UK consumer confidence unexpectedly deteriorated in February, with the index compiled by Growth for Knowledge declining from -16 to -19 (vs -15 consensus) and matching the softest level since May of last year. Details especially showed worries amongst households when it comes to their personal finances. Both on how they perceived them the last 12 months and how they expect them the next year. They’re also less eager to engage in major purchases despite a significant retracement in savings intentions. This mix of details is a clear nod the ongoing cost-of-living crisis with households prioritizing day-to-day spending.
 again raised questions on PM Starmer’s position adding to broader political (and policy) uncertainty. Sterling’s performance this morning is a first barometer. EUR/GBP is attacking to key 0.8745/50 resistance area. A break at least would be significant from a technical point of view. We also keep an eye on UK gilts, which performed ‘remarkably’ well this month (and also yesterday).){kind=link}