Markets
US headline CPI accelerated to 0.9% M/M in March, the fastest monthly pace since June 2022. On an annual basis, inflation increased from 2.4% to 3.3%, in line with our KBC Nowcast estimate but just below the 3.4% consensus estimate. It was the highest outcome since May 2024. Gasoline accounted for almost three-quarters of the US CPI rise in the biggest price rise on record since 1967. Energy prices overall increased by 10.9% M/M, the most since 2005. Other details showed used-car prices falling for a fourth straight month with grocery prices also falling. Services costs excluding energy rose by 0.2% M/M with airfares up 2.7%. Shelter prices rose 0.3% M/M. The pace of core CPI steadied at 0.2% M/M with annual underlying inflation ticking up from 2.5% to 2.6%. Looking forward to April, our KBC Nowcast model expect headline CPI to rise further to 3.8% Y/Y (+0.6% M/M) assuming gas prices slightly above current levels ($4.15/gallon). Core CPI is forecast to stick at 2.6%. US Treasuries very briefly spiked higher as inflation headlines hit the screens, but that move didn’t stick. If any, Treasuries tend to cede some ground going into this weekend negotiations between the US and Iran in Islamabad. With Iran’s 10-point proposal and the US 15-point plan being diametrically opposed, the best outcome probably is to meet again somewhere in the near future and extend the fragile cease-fire. Israel’s role against Lebanon might be crucial in determining the potential success. In the meantime, Iran keeps a very strong grip on the Straight of Hormuz both via its selective toll-booth system and via a loss of confidence at stranded vessels to embark on the passage. US yields currently add around 2 bps across the curve. German Bunds and especially UK gilts underperform. German yields are 4 to 5 bps higher on the day while the UK yield curve bear steepens with yields 5.5 bps (2-yr) to 9 bps (30-yr) higher. Brent crude initially traded with an upward bias today ($96/b to $98/b) after Iran news agencies denied news that a negotiating team had already arrived in Pakistan. They emphasized that negotiations will be suspended as long as the US does not fulfill its commitment to a ceasefire in Lebanon. There were also headline of Iran-backed militia hitting targets in Kuwait. Brent crude afterwards returned to $96/b after Ukrainian President Zelensky’s top aide suggested nearing a deal with Russia to stop the war. On FX markets, the dollar is slightly weaker at EUR/USD 1.1726. European stock markets add 0.75% to their recovery with key US indices currently mixed (-0.3% for Dow, +0.5% for Nasdaq).
News & Views
Hungary heads to the polls on Sunday in what may prove its most consequential parliamentary election in two decades. Prime Minister Viktor Orbán and his Fidesz party are seeking to extend a 16-year hold on power. Over that period, Orbán has steadily consolidated authority, often at the expense of rule-of-law standards and EU norms, according to the European Commission, leaving Budapest frequently at odds with Brussels. The standoff resulted in roughly €20bn of EU funds remaining frozen. Recent polling, however points to a potentially dramatic shift: Péter Magyar, a former Fidesz insider who broke away in 2024 to found the Tisza movement, has surged in popularity. In some surveys he commands a lead large enough to secure a two-thirds parliamentary majority. Markets have responded favourably to the prospect of a more pro-European government, anticipating improved relations with Brussels, access to suspended funds and a return to more orthodox policymaking, developments already reflected in lower long-term yields and a firmer forint. Yet uncertainty remains elevated. Polls are divided and often politically skewed, electoral reforms over the past decade may tilt the playing field towards the incumbent and turnout will be critical—leaving investors wary of asymmetric risks, particularly for the Hungarian currency, despite the prevailing market optimism. At the EUR/HUF 377, the forint almost fully reversed initial losses post the war in the Middle East. Aat 6.45%, the forint 10-y swap yield also already trades about 1.0% below the mid-March peak (Risk-off) levels.
Statistics Canada reported March labour market data close to expectations. Employment rose modestly (+14k), but this came on the back of a 109k cumulative decline over the previous two months. Employment was still 87k higher Y/Y, due to a rise at the end of last year. The unemployment rate was unchanged at 6.7%. Positive job growth was reported in ‘other services’ (+15k) and also in natural resources (+10k) but employment declined in finance, insurance, real estate, rental, and leasing (-11k). Average hourly wages increased 4.7% Y/Y (was 3.9% Y/Y in February). After broad-based USD strength in the month of March, the loonie recently regained ground to currently trade near 1.382 (peak 1.396 end March).
