Markets
Calm returned to European stock markets after a manic Monday. EU bourses recoup a modest 0.4 to 1% from the losses that mounted to more than 4%. US stocks are less lucky. The late-session turnaround yesterday proved partially futile. Wall Street opens with losses going up to 2.7% (Nasdaq). It confirms our idea that markets will probably remain on edge at least until the Fed provides them with some clarity tomorrow on how aggressively monetary support is going to be withdrawn. Aside from the Fed, the Russian-Ukraine conflict lingers too. Historical evidence suggests that it’s usually the highly uncertain pre-war period rather than an outright military conflict itself that causes most damage to (equity) markets. The German bond market yesterday outperformed the US since it missed out on the abrupt change in sentiment. Cards are dealt differently today. The US curve bull flattens with yield changes ranging from -1.6 bps (3y) to -2.7 bps (30y). Germany’s yield curve bear steepens up to 2.2 bps (30y). While there was no market impact, we do mention ECB Chief Economist Lane’s speech. The ECB’s most dovish governor may finally have altered his view on inflation. He said that it’s possible that inflation stabilizes around 2% as some factors that depressed prices before the pandemic won’t return. Policies to fight very low inflation would then no longer be needed, he added. Before, Lane fenced with the ECB’s sub 2% inflation projections for 2023 and 2024 when justifying the ultra-easy policy stance.
The yen shined bright on FX markets. Japan’s currency gains against all G10 peers. EUR/JPY is testing yesterday’s intraday lows around 128.37. A solid dollar limits the damage for USD/JPY to 113.88. The trade-weighted greenback rises back north of 96(.18) for the first time since early January. EUR/USD (1.127) takes a technically exacerbated hit. It dives below the lower bound of the upward sloping trend channel (daily support level stood at 1.1292). Sterling rebounds and undoes a technical break higher in EUR/GBP. The pair is currently changings hands at 0.836, down from 0.84 in early morning trading. Still no sign of a political premium in sterling, not even now the UK police began formally investigating allegations concerning “partygate”. In Central-Europe, the Hungarian forint outperforms peers today. The Hungarian central bank raised the monthly policy rate with a more-than-expected 50 bps to 2.90% in a catch-up move with the one-week deposit rate (4%). It aggressively jacked up that de facto main policy rate over the past months to support the forint and counter spiraling inflation. Showing its determination on bringing inflation under control, the MNB also raised the ceiling on the interest rate corridor to 4.9% from 4.4%, allowing it to increase the one-week deposit rate even further. EUR/HUF eases from an intraday high of 362 to 358.93 currently.
News Headlines
UK borrowing in the first nine months of the fiscal year 2021/22 came in at £146.8 bln, National Statistics data showed. This was £12.9 bln below the October forecast by the OBR. A bigger than expected rise in tax receipts compensated for a £21bln increase (+69%) of interest rate costs over the same period. Receipts from VAT, corporate taxes and stamp duties related to property transactions were all higher. The better than expected budget data might give UK Finance Minister Sunak room to take measures to ease the pain from a rising cost of living especially as the energy bill of UK consumers is expected to rise sharply in April. The government also can consider to delay/amend a planned rise in payroll taxes at that time.
Confidence among Belgian businesses in January eased further from 3.6 in December to 2.7 in January, the lowest level in since March of last year. The National Bank still describes the decline as ‘only very slight’. Confidence in manufacturing declined to 0.8 from 3.1. The assessment of the industrial sector on employment and demand recovered a bit, but deteriorated on total order books and stock levels. Trade (-4.8 from -3.5) and the building industry (0.2 from 1.2) turned less positive but business related services improved from 10.1 to 16.1 thanks to expectations for general market demand and regarding their own business.
