Markets
For the third consecutive session, markets were ‘forced into’ technical trading as there were few data with market-moving potential and as markets basically concluded that the assessment on the timing of (potential) rate hikes in the likes of the US or EMU is likely postponed at least until September (or even later). Even so, given this short-term ‘market equilibrium’, yields in the US and EMU today added a few bps. Oil prices after a protracted decline from levels near $120 p/b end-April, apparently found a short-term bottom. This is a nice setback reversing most of the post-war rise. Even so, quotations further out on the oil curve still are higher compared to the start of the year. In this respect, uncertainty on supply (e.g. potential fees to pass through the Strait of Hormuz, military incidents and/or other potential supply issues) isn’t solved yet and still might affect prices. Whatever the reason, Brent oil trades near $72.5 p/b, off the lows near $70 touched last week. In this context, US and European/German yields add 3–4 bps across the curve. Fiscal sustainability also probably remains an issue. In this respect, Japanese yields continued to rise this morning between 1.9 bps and 3.2 bps over the 2-y–20-y sector, with 10-y and 20-y setting new multi-decade highs at 2.86% and 3.84% respectively. The 30-y fared a bit better in auction outcome today, but most of the intraday gains had to be returned later in the session. Regarding the theme of fiscal sustainability, we also keep an eye on the monthly US Treasury refinancing starting with a $58bn 3-yr note action this evening. The sale of 10-y Notes (tomorrow) and 30-y Notes (Thursday) in this respect might be more important as a pointer. Equity markets entered somewhat of a more erratic pattern. This apparently is a mix of some kind of sector rotation, but also a hesitant reaction to results in tech/AI-related sectors (e.g. Samsung this morning), suggesting some market nervousness on valuations going into the Q2 earnings season. The EuroStoxx 50 eased 0.5%. After Nasdaq outperformance yesterday, some rotation (or is it hesitancy?) is again at work with the Dow gaining 0.4%, the S&P opening little changed and the Nasdaq correcting 0.6%.
For now, very little to report on the major USD cross rates. The delay on policy moves at least until after summer ‘neutralizes’ interest rates and interest rate differentials as a factor for FX trading. At this stage it’s also not clear which currencies might be affected most in case fiscal sustainability would gain importance as a global market factor. EUR/USD is going nowhere. The pair holds in the lower half of the 1.14 big figure (1.1435). DXY in a similar pattern hovers sideways near 101 (100.95). USD/JPY at 161.9 still shows yen fragility, but at least for now the impression is that markets and Japanese authorities also respect some kind of implicit short-term ceasefire. Sterling remains well bid against the euro, with EUR/GBP (0.8545) near the lowest levels in more than a year.
News & Views
Hungarian inflation in June landed close to expectations. Prices stagnated on a monthly basis and pulled the yearly print further below the 2% lower limit of the 3% ±1 ppt target range (1.7% from 1.8%). Food prices fell by 0.2% m/m (and y/y), Hungary’s statistics office showed. Services added 0.3% to their prices (4% y/y) while electricity, gas and other fuel prices were up by 0.4% (−2.3% y/y). Core CPI rose 0.14% m/m with the annual print at 1.97%, more or less matching May. Sticky price inflation, a measure compiled by the central bank, eased from 3.8% y/y to 3.6% – the slowest since May 2020. The central bank’s flash analysis shows that June CPI came in below the projections made last month. The Hungarian central bank at its June meeting lowered rates by 25 bps and flagged several more to come throughout the summer months. Budapest gets backing from today’s data to do so. The dovish messaging triggered negligible HUF depreciation, meaning currency markets are not protesting either. EUR/HUF today barely budged around 354. Money markets assume MNB easing to end around 5% from a 6% base rate currently.
Prices fell 0.3% m/m in Czechia last month. The bigger-than-expected drop dragged y/y inflation from 2.1% to 1.5% vs 1.8% expected. Core CPI (ex. energy, food, alcohol and tobacco) rose 0.3% m/m and remained at May’s 3.1%. Combined with elevated services inflation at 4.5% (from 4.7%), it suggests underlying price momentum is stronger than it looks on the surface. Energy prices indeed dropped a sharp 2.8% m/m amid the recent oil price decline, pushing the y/y figure to −1% in a sharp reversal from May’s +1.8%. It is this stubborn domestic price risk that prompted the Czech National Bank to raise rates to 3.75% last month. Guidance for future moves was scarce but most policymakers labelled the June move as a precautionary one rather than the start of a cycle. Czech money markets entertain the idea of another increase in one of the upcoming meetings (perhaps September), even after today’s CPI miss. The Czech koruna loses some ground to EUR/CZK 24.23.
 rate hikes in the likes of the US or EMU is likely postponed at least until September (or even later). Even so, given this short-term 'market equilibrium', yields in the US and EMU today added a few bps. Oil prices after a protracted decline from levels near $120 p/b end-April, apparently found a short-term bottom. This is a nice setback reversing most of the post-war rise. Even so, quotations further out on the oil curve still are higher compared to the start of the year.){kind=link}