Markets
China disclosed that the amount of corona cases in Hubei surged well passed 15 000 in just one day. The abrupt rise resulted from applying a more conservative diagnose standard. To markets however, it was a particularly chill reminder that the issue is far from over. Risk-off dominated during Asian trading hours and rolled over into European dealings. The economic calendar proved irrelevant with close-to-consensus US CPI (0.2% m/m core, 0.1% headline) not leaving a stamp on markets. Stocks retreated from all-time highs (Dax, EuroStoxx 600) or recent highs but bottomed out around noon though, as did the slide in core yields with sentiment gradually turning a bit better. The US yield curve bull flattened with the belly outperforming the wings. German yields almost completely reversed intraday losses. FX markets were equally puzzling as interesting to watch. Several (euro denominated) currency pairs were either at or near key technical levels these past few days. But today’s break in EUR/JPY below 119.25 (November 2019 correction low) eventually triggered a chain reaction across the others. EUR/USD reversed its cautious uptrend and forfeited the 1.0879 support area, paving the way for the 1.0821 April 2017 upper side gap. The narrowing interest rate differential nor the slightly better sentiment again had zero – even a negative – impact on the beleaguered common currency. EUR/CHF slipped below 1.063, the 2017 low. The (euro)move was also visible in EUR/GBP (cf. infra) and even in the likes of the Swedish and Norwegian krona and the Hungarian forint (by extending gains following a much stronger than expected CPI reading, see headline)!
PM Johnson withdrew in Downing Street 10 today for a cabinet reshuffle. Expectations were rather low with key positions to stay unchanged. However, Chancellor of the Exchequer Sajid Javid suddenly announced his resignation. Johnson asked Javid to sack all five of his most senior aides, a request said aimed at taking more/full control of Treasury. Javid refused and quit. His deputy Rishi Sunak has been appointed as the new Chancellor. The pound sterling appreciated, probably in part on speculation that the UK’s new finance minister might pursue more fiscal spending. The strengthening – or EUR/GBP weakening – also originated to an important extent from the break in EUR/JPY, causing spillovers in several other euro denominated currency pairs. EUR/GBP is currently trading at levels seen shortly after the overwhelming Conservative Party victory (0.833). Cable advanced above 1.30 from 1.295.
News Headlines
Hungarian inflation picked up from 4% to 4.7% (Y/Y) in January, considerably higher than consensus (4.4%). The MNB’s core gauge excluding indirect taxes rose from 3.5% to 3.7%. MNB deputy governor Nagy stated the central bank is making every effort to bring inflation back to its target within a horizon of 5 to 8 quarters, raising the odds that the MNB will implement a first cautious tightening in March or April.
The International Energy Agency (IEA) expects global oil demand in Q1/2020 to drop for the first time in 10 years before picking up again in Q2. The IEA cites the coronavirus and the consequent shutdown of the Chinese economy as the major drags on oil demand. The agency estimates oil markets facing a significant surplus despite the latest output cuts by OPEC+.
Irish left-wing nationalist party Sinn Fein disclosed today it formally requested talks with center-right rival Fianna Fail to debate options for forming a new government. Sinn Fein, Fianna Fail and PM Varadkar’s Fine Gael each secured just under a quarter of seats in parliament last weekend, making it difficult to form a government unless at least 2 of the 3 parties take a seat at the table.
