Equity indices reached a short-term equilibrium even as uncertainty on corona persists. European an US equities mostly show limited gains. German growth came to a standstill in Q4, but Q3 growth was lightly upwardly revised. EMU growth printed at a meagre 0.1 Q/Q and 0.9% Y/Y, close to expectations. Contrary to other soft EMU data recently, today’s data had little impact on EMU bonds on or on the euro. In the US, investors keenly awaited the retail sales data as private consumption lost momentum at the end of last year. Headline sales were close to expectations, but the control group series, seen as a proxy for consumer spending in the GDP release, stagnated (0.0% M/M) and the December figure was downwardly revised to 0.2%, painting an overall bleak picture. US yields lost temporarily further ground after the release. They currently decline between 2.5-4.5 bp across the curve ahead of the long weekend (US markets closed on Monday for President’s Day). US production (-0.3%) was also uninspiring but with little impact. Bunds again underperformed with yields ceding between 1bp (2-y) and 2 bps (10-y). 10-y intra-EMU spreads versus Germany are mostly little changed to marginally wider, with Italy underperforming (+3 bp, lingering political uncertainty). The dollar lost a few ticks. USD/JPY is trading in the 109.80 area. EUR/USD tries a very cautious attempt to build an intraday bottom, but at 1.0850 recent lows are still within striking distance.

EUR/GBP opened close to the 0.83 level. Sterling rallied yesterday as investors hoped the new Fin Min would support the economy via fiscal spending. Today, sterling fell prey to some profit taking. EUR/GBP trades currently near 0.833.

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Central European currencies drew more than average attention recently. Today’s data inspired further investor repositioning. The Czech Republic and Poland released growth and inflation data. Hungary released Q4 growth after yesterday’s surprise jump in inflation. The Czech koruna and the forint extended their recent comeback/rebound. Czech Q4 growth slowed more than expected at 0.2% Q/Q and 1.7% Y/Y, but an unexpected sharp rise in January inflation (1.5% M/M; 3.6% Y/Y) ‘justified’ last week’s CNB rate hike. The koruna initially extended gains but took a step backward later (EUR/CZK 24.85 currently). The forint already rebounded off the all-time low against the euro touched earlier this week as a sharp rise in inflation raised speculation on MNB tightening in the coming months. The move was reinforced as Q4 GDP also printed substantially stronger than expected at 1.0% Q/Q (0.5% expected). EUR/HUF hovers in the 335 area compared to this week’s top of 340. The zloty is the laggard in this regional rally. Polish GDP growth  (0.2% Q/Q and 3.1% Y.Y) was also slightly stronger than  expected and inflation jumped 0.9% M/M and 4.4% Y/Y (consensus  4.2%, 3.4% in December). However markets clearly aren’t convinced that this will cause the NBP to raise rates anytime soon. This view was supported by comments from policy maker Ancyparowicz. She said a rate hike would be a mistake. In the longer term, she even preferred rate cuts as she expects a substantially lower growth path. EUR/PLN is trading little changed from a daily perspective (EUR/PLN 4.25 area).

News Headlines

Today’s retail sales suggest that Joe Sixpack started 2020 rather weak. The headline gauge increased 0.3% M/M after a moderate 0.2% in December. A strong decline in clothing (-3.1%) and fuel prices (-0.5%) was compensated by a recovery in auto parts (0.2%) and miscellaneous (2.3%). The “control” group, which is considered a better reflection of consumption, stagnated in January and, the December print was downwardly revised (0.2% from 0.5%.)

Former Italian PM Matteo Renzi ratcheted up tensions in the country’s coalition government after his centrist Italia Viva party boycotted a cabinet meeting over a legal reform of the statute of limitations. Renzi pulled the plug on the alliance and challenged PM Giuseppe Conte to form a new government.


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