Markets
20. That’s the amount, more or less, of central banks that will hold their final policy meeting of 2021. Major events this week include the likes of the Fed (Wednesday), the Bank of England and the ECB (both on Thursday). Turkey, Norway, Switzerland, Japan, Russia, Hungary and many others together with important economic data (EMU PMIs, US retail sales, UK labour market and CPI) fill the gaps here and there, except for today. Monday’s session thus was much like the weather: dull and grey as investors stuck to the sidelines. Core bonds traded with an upward “better safe than sorry” bias, causing a gentle flattening of the German yield curve. Changes stay limited to -1.2/1.4 bps (10y/30y). Peripheral spreads narrow 1 bp. Italy again outperforms (-3 bps). Both Italy and Greece, Europe’s two most indebted countries, showed some nervousness last week against the background of the ECB exploring PEPP options for when the crisis tool comes to an end in March 2022. The US curve flattens too with the 2y (+1.3 bps) recouping some of last Friday’s small CPI-driven correction. The long end outperforms with gains building as we go into early US dealings (10y: -3.8 bps, 30y: -5.1bps) even as the Fed is widely anticipated to double the pace of tapering. Stock markets initially kicked off in good spirits. The EuroStoxx50 rose about 0.5% but a more fragile US sentiment reduces current gains to about 0.2%. Equities on WS open 0.3-0.4% lower.
The US dollar held an edge over most majors. The trade-weighted dollar (DXY) ekes out a gain from 96.1 to 96.3 though is off intraday highs. EUR/USD came under additional selling pressure at the beginning of European dealings but found a bottom around 1.126. The pair is currently filling bids in the 1.129 support/resistance area. Sterling is doing not too bad. EUR/GBP hit the 0.85 big figure after trading as high as 0.855 in Asian dealings. A break lower was never really explored. Things were a lot spicier more east though. The Turkish lira gets knocked out once again after S&P lowered the country’s rating outlook to negative and the fresh Turkish finance minister Nebati told Haberturk newspaper that “we [speaking in name of the government, really] will not raise rates”. The central bank convenes later this week and is expected to cut rates further from 15% to 14%. EUR/TRY in volatile early dealings spiked at 16.6 before easing to 15.9 currently, another new all-time low despite new FX interventions (selling foreign currency reserves to support the lira) by the CBRT. In Central-Europe, the Hungarian forint lags the CZK and PLN today. EUR/HUF edges higher from 365.5 to 367.13, near last week’s lows. Perhaps some nervousness kicks in ahead of tomorrow’s MNB meeting. Consensus expects the base rate to be lifted from 2.1% to 2.5% but markets are probably hoping for more. The one-week deposit rate, the de facto policy rate, is seen hiked to 3.5% two days later.
News Headlines
The Organization of the Petroleum Exporting Countries published its monthly oil market report. OPEC raised its oil demand forecasts for Q1 2022, but keeps it steady at 4.2 mb/d for the full year amid a more steady recovery in H2 2022. The impact of the new Omicron variant is expected to be mild and short-lived, as the world becomes better equipped to manage COVID-19 and its related challenges. 2022 world oil supply forecasts were kept stable as well. Brent crude continues to hover around the $75/barrel mark.
Czech National Bank vice-governor Mora joined this weekend’s call by MPC member Holub in arguing for a >25 bps rate hike at the December meeting. Personally, he’s considering 50 bps or 75 bps. Mora pins the aggressive attitude to the further increase in inflation in November (to 6% Y/Y) which requires more significant action. On top, wage pressure shows no signs of easing while Q4 GDP is expected to beat the central bank’s forecasts despite the virus resurgence and despite weaker production in the car sector. Mora added that the tightening cycle “theoretically” could end in February next year based on the prognosis that inflation will return back to target over 2022 into early 2023. The Czech koruna traded near the strongest levels against the euro this month at EUR/CZK 25.35.
