Reigning (reflationary) market trends took a breather today. The change of tack came even as the OECD released an significantly more upbeat interim economic outlook today. US fiscal stimulus will not only help domestic growth surging this year, but also globally. World economic growth for 2021 is forecasted at 5.6% vs. 4.2% in its projections end of last year. India is seen as the biggest beneficiary with a stunning 12.6% 2021 growth (+4.7 ppt). The Paris-based institution thinks US growth this year will amount to 6.5% vs. 3.2% earlier. For the euro zone, growth is expected at 3.9% this year. The bloc saw a poor 0.3% upgrade as the boost from the stimulus package is being offset by the lag in vaccination programmes. The British economy received a 0.9% boost to 5.1% growth in 2021. China was one of the few countries where GDP growth was (slightly) lowered to a still lofty 7.8%. The rosier picture didn’t help core bond yields higher, quite the contrary. The timing is remarkable however as curves bull flatten ahead of a US 3-yr auction (and longer maturities later this week) which could be revealing for investor appetite (remember the flopped 7-yr auction two weeks ago). US yields lose 3.9 bps (5-yr) to 5.6 bps (10-yr). German yields stumble lower in a similar fashion. The European 10y swap is nearing the 0% again. The ECB stepped up its PEPP bond buying in the first week of March slightly to 18.2bn euro (including redemptions, which were with 6.3bn euro unusually large). Peripheral spread changes are mostly marginal. Italy (-3 bps) outperforms. Easing upward yield pressure brings some relief to equity markets as well. European stocks inch about half a percent higher. Wall Street opens strong with the tech-heavy Nasdaq recovering 2.4% from its recent beating.
FX markets also went in reverse compared to the previous days. The dollar traded on the back foot, losing against all G10 peers. EUR/USD rose from the 1.183 area to an intraday high of 1.1916. Maintaining the 1.19 big figure seems to be too big of an ask though as the pair is currently changing hands in the 1.189 area. Similar stories hold for DXY and USD/JPY. The former tested resistance near 92.46 (23.6% recovery from the March 2020 high – January 2021 low) but failed to push through and returning to the low 92 area instead (down from 92.31). The latter (currently filling bids at 108.78) took out 109 during Asian dealings but lacked strong enough legs. Sterling initially braced for some (minor) losses along with the greenback today. A technical “rebound” brought EUR/GBP from an intraday low at 0.856 (76.4% 2020 Feb low – March high retracement) to 0.858 but even that limited gain faded going into US dealings. The pair (0.856) is currently trading even lower compared to yesterday’s close. Sterling looks determined to test the 2021 low at 0.854.
Hungarian inflation rose 0.7% M/M to be up 3.1% Y/Y in February, from 2.7%Y/Y in January. Core inflation rose by 4.1%. The rise in inflation was slightly higher than expected. At the same time, the central bank of Hungary published its measure of core inflation (excluding indirect taxes) slowing to 3.4% Y/Y in February from 3.5% in January. The MNB has an inflation target of 3% with a deviation range of +/- 1%. The overall rise in inflation was mainly the result of base effects due to higher oil prices and increases in excise tax on tobacco products. These developments might cause inflation to rise above of 4% in the next months. A further rise in inflation and a weak forint might put pressure on the NBH to raise the one-week repo rate. In a separate statement, the National Bank of Hungary also indicated some changes to its bond purchase program in order to make purchases more flexible as the third wave of the corona virus and growing risks of reflation have recently led to rises in yields and heightened volatility in financial markets. “If warranted by the stability and liquidity position of the government securities market, the NBH’s purchases may exceed the 50 percent share of individual series”. The bank explicitly said that the measures keep the policy stance unchanged. EUR/HUF is holding near recent peak levels in the EUR/HUF 367 area.