A vibrant performance of Asian stock markets and an upward revision to German Q2 GDP data (1.6% Q/Q from 1.5% Q/Q) set the tone for higher EU equities and EU rates at the European opening bell. It turned out to be an illusion though that it would last throughout dealings. Opening moves were rapidly erased with main FI and stock markets switching sides afterwards. A near empty eco calendar and lack of central bank rhetoric obviously didn’t impact intraday trading dynamics. European stock markets trade around 0.5% weaker at the time of writing. US Treasuries underperform in the run-up to tonight’s start of the US Treasury’s end-of-month refinancing operation ($60bn 2-yr Note). The US yield curve bear steepened with yields adding 0.4 bps (2-yr) to 2.8 bps (30-yr). German yields are slightly higher with the belly of the curve slightly underperforming. The SPD for the first time polled stronger than the CDU/CSU bloc, but it didn’t draw markets’ attention even as national elections are only one month away (September 26). Too many factors have potential market disturbing potential in between, including Powell’s Jackson Hole speech (Aug 27), EMU CPI (Aug 31), US payrolls (Sep 3), the ECB meeting (Sep 9) and the Fed meeting (Sep 22). Commodity markets did manage to add to yesterday’s rebound with iron ore (+2%) and Brent crude (+1.5%) amongst the outperformers. Brent prices briefly ticked $70/b, erasing last week’s sudden slide towards $65/b. Commodity currencies extend a similar U-turn with EUR/NOK trading back below 10.40 (compared to 10.60 weekly close) or NZD/USD back at 0.6950 (from 0.68). Hawkish comments from RNBZ member Hawkesby (I kid you not) add to RBNZ strength. He said that a 50 bps rate hike was discussed at this month’s RBNZ meeting where the central bank for communication rather than economic reasons decided to opt for delaying the tightening cycle instead. The single currency retained the upper hand over USD and GBP. EUR/USD changes hands around 1.1750 with EUR/GBP at 0.8570. As mentioned above, the waiting game continues…
The Czech Finance Ministry published new economic forecasts. Growth was upwardly revised for this and next year to respectively 3.2% and 4.2%, up from 3.1% and 3.7% at is previous forecast in April. The expansion is expected to be mainly driven by domestic demand/consumption. This also translates in better public finance data. The Government budget deficit is now expected at 7.7% in 2021 (from 8.8%) and at 5.9% in 2022 (from 5.0%). Even so, the general government debt remains on an upward trajectory rising from 43.5 this year, to 46.2% next year and 49.2% in 2023, but debt levels are also downwardly revised from the April forecast. The Ministry also sees higher average CPI inflation at 3.2% this year (from 2.5%), at 3.5% next year and at 2.4% in 2023. The Czech koruna intraday strengthen temporary below EUR/CZK 25.50 on a constructive risk sentiment but failed to hold on to its gains despite the positive government outlook (currently EUR/CZK 25.52).
The national bank of Hungary as expected raised its base rate by 0.30% to 1.50%. The overnight deposit rate (0.55%) and the collateralized lending rate (2.45%) were raised by a similar amount. In light of the September Inflation Report, the MPC will perform a comprehensive assessment of the results achieved by the cycle of interest rate hikes, and will identify risks to the inflation outlook. The Monetary Council also decided to gradually begin withdrawing the government securities purchase programme. In the future, the Monetary Council will not set a revision limit applicable to the entire stock purchased under the programme. Instead, the Council will set a target amount for weekly purchases. As a first step, the MNB’s purchases will decrease from a weekly amount of HUF 60 billion to HUF 50 billion. The forint extended gains after the policy decision. EUR/HUF currently trades in the 348.70 area.