Markets
China scaled back some of the harshest corona related restrictions as it tries to restart production in Chinese enterprises. At the same time, fears of the virus having a potential significant economic impact through supply chain disruptions still linger.
Today’s eco calendar was of zero importance. Investors did hold a cautious bias with key events looming later this week, Fed’s Powell semi-annual speech to the House of Representatives being the first (tomorrow).
Recent developments in German politics also put a damper on sentiment. Merkel’s protégé and head of the national CDU party Annagret Kramp-Karrenbauer resigned from her post this morning, citing internal disagreement on how to handle the Thuringia affair end of last week. AKK’s resignation might undermine the already fragile CDU-SPD coalition further. Risks for a government collapse on the federal level remain high.
Most European stock markets slipped in the wake of a soft Asian session. Core bonds grind higher with USTs outperforming the German Bund. The US yield curve bull flattens with yields declining 2.2 bps (2-yr) to 2.5 bps (10-yr). German yield slide 2 bps at the long end of the curve. Peripheral spread changes are negligible. The Irish election outcome doesn’t bode well for future coalition talks but the impact on Irish yields is close to non-existent. EUR/USD held a tight sideways range around opening levels before slipping south as the US joined markets. The move fits the overall deterioration in sentiment. EUR/USD is currently changing hands around 1.093. The 2019 low (1.0879) is a crucial support area. USD/JPY forfeited intraday gains to trade virtually unchanged compared to Friday’s close at around 109.7.
EUR/GBP initially headed north in a technically inspired trading session but that move soon ran out of vigor. That shouldn’t come as a surprise given that the euro is in dire shape lately while sterling is performing rather well even as political rhetoric flared up. The currency pair’s test of 0.85 failed miserably and was quickly followed by an intraday trend reversal. EUR/GBP is currently changing hands at around 0.845, down from 0.849 at open. Cable is trading higher in the 1.294 area (from 1.288).
News Headlines
Norwegian inflation figures took markets by surprise. Headline inflation unexpectedly picked up speed from 1.4% (Y/Y) to 1.8% in January, while economists anticipated a further decline to 1.2%. Underlying inflation, excluding energy prices and indirect taxes, also picked up from 1.8% to 2.9%, way ahead of the 2% forecast and the 2.2% expected by the Norges Bank. The increase was largely due to food prices (2.1%), in addition to furniture (6.5%), clothing (4.2%) and transportation services (2.8%). The krone strengthened following the inflation prints with EUR/NOK moving from 10.16 toward 10.12.
Turkey has further stiffened controls imposed on the lira as it moves on with efforts to control the country’s currency. The BDDK bank regulator on Sunday cut the limit for Turkish banks’ FX swap, spot and forward transactions with foreign entities from 25% to 10% after the lira tumbled beyond EUR/TRY 6.63 on Friday. The lira strengthened to as low as EUR/TRY 6.548 today as trading resumed before reversing course.
