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Sunset Market Commentary


December US retail sales were today’s main dish. The headline figure declined by 1.9% M/M which was significantly below near flat consensus. Core sales dropped by 2.3% on a monthly basis and the control group, seen as a proxy to calculate consumption in GDP, even fell by 3.1% M/M. Numbers are based on absolute dollar levels of purchases, suggesting somewhat weaker underlying picture given that US inflation is running at 7% Y/Y. The monthly setback is obviously related to the surging omicron-variant of the Covid-virus which kept people at home and might therefore be more of a one-off rather than a structural change in a strong spending pattern. Combined data for Q4 point to a 8.7% Q/Qa increase for headline retail sales and 5.9% Q/Qa for the control group. The retail sales failed to disturb sluggish intraday trading dynamics as US markets head into the long weekend. They close on Monday for MLK Day.

European stock markets opened around 1% weaker in a catch-up move with yesterday’s WS performance. Intraday dynamics didn’t deteriorate further with opening levels currently still on the charts. The dollar slightly recovers from this week’s beating, but moves don’t drag that far. Technical breaks in EUR/USD, DXY and USD/JPY aren’t overturned. The Japanese yen even continues outperforming the dollar in the run-up to next week’s BoJ meeting. Earlier rumours of an upgraded expected inflation trajectory were this morning followed by unconfirmed talk that the central bank would even contemplate a rate hike (next year) even if inflation is still below the central bank’s 2% target. In Bank of Japan space, such news is huge as it strikes with their multidecade easy monetary policy. US Treasuries trade choppy. US yields add 2.6 bps to 3.4 bps in a daily perspective with the belly of the curve outperforming the wings. The German yield curve bear steepens with yields rising by 0.9 bps (2-yr) to 2.2 bps (30-yr). 10-yr yield spread changes vs Germany are virtually unchanged with Greece (-3 bps) outperforming.

Next week’s eco calendar includes key UK eco data with labour market report, inflation numbers and retail sales. They are unlikely to derail the Bank of England from raising policy rates a second time in February. EMU and US eco calendars won’t inspire. Other features to watch are Chinese Q4 GDP numbers on Monday and central bank meetings in Norway and Turkey.  News Headlines

Hungarian inflation rose 0.3% m/m to a higher-than-expected 7.4% y/y in December. The price increases were broadly based. Food registered the biggest month-on-month rise (+1.5% m/m), followed by restaurants & hotels (0.8%) and furnishings (0.7%). Inflation should moderate to 7% in January but the outcome is prone to statistical distortion. The new CPI weightings this year reflect consumption structure of 2020 which saw relative bigger spending in food and tradeable goods, two of the biggest contributors to today’s inflation. KBC Economics expects the Hungarian central bank to continue its tightening cycle via the one-week deposit rate by the end of January. The rate could reach a peak of 5%, up from 4% currently. Hungary’s forint underperforms peers today. EUR/HUF trades around 356.19. Just yesterday, the forint touched the strongest level since mid-September at 350.88.

In his first interview with a foreign news agency, Turkish new FM Nebati said inflation will peak months earlier and at a much lower rate than many predict today. He said the top priority in recent weeks was to stem the lira’s decline. While EUR/TRY (15.50 today) indeed stabilized in the weeks, it did so at a historically still-high (low in lira-terms) level. Nebati believes the effect of earlier lira declines will feed into the January inflation figure after which a natural decline over 2022 should kick in. With the lira issue now resolved, he said, focus turns to inflation. The government will continue to support the economy but with selective measures. Regarding monetary policy, Nebati suggested the CBRT will stick to the sidelines for a month or three to assess the impact of the earlier rate cuts.

KBC Bank
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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