Markets
More headlines about a Russian pullback hit the wires. Momentum started shifting yesterday after Russian defense minister Shoigu told president Putin that some of the country’s military drills have already ended and others were coming to a close. Foreign Minister Lavrov simultaneously received the go ahead to extend negotiations. NATO is still awaiting official evidence, but risk sentiment on markets nonetheless started improving. Moves accelerated as the US session got started. Brent crude falls from a cycle high of $96/b to $93/b. Main European stock markets rebound up to 1.5%. Core bonds cede ground with both the German Bund and the US Note future again approaching last week’s post-CPI sell-off low. The US yield curve bear steepens with daily changes ranging between +1.5 bps (2-yr) and +6.1 bps (30-yr). The US 10-yr yield moves back at the 2.05% recovery top. The German curve shifts in similar fashion with yields adding 2.8 bps (2-yr) to 5.8 bps (30-yr). The German 10-yr yield sets a new high above 0.3%. The EU 10y swap rate does the same at 0.9%. 10-yr yield spreads vs Germany narrow by up to 3 bps for Italy. The Japanese yen and Swiss franc return part of past session’s gains. EUR/USD trades with an upward bias, changing hands at 1.1354 compared with an 1.1307 open. Eco data included a slightly smaller than expected increase in Germen ZEW investor sentiment, accelerating US producer price inflation (1% M/M & 9.7% Y/Y for headline) and only a small bounce higher in the Empire Manufacturing Survey (coming from the weakest level since May 2020). Details showed relentless price pressure, slightly rising new orders and shipments, higher employment, but a more downbeat assessment on the future (6 months ahead). Markets didn’t respond to the data. EUR/GBP trading is still a proxy of EUR/USD action with the pair rising to 0.8388.
The Kingdom of Belgium launched a new long 30-yr benchmark via syndication (OLO 95 Jun2053). The order book was above €36bn with the debt agency printing a slightly larger than usual size for the very long end: €5bn. Like with last week’s 30-yr Spanish deal, debt agencies seem aware the extremely beneficial financing conditions are drawing to an end as even the ECB is preparing a policy normalization turn to battle persistently high inflation. The deal was priced at 12 bps over the own OLO-curve, compared to initial guidance of +14 bps. Together with an earlier €5bn 10-yr benchmark, the Belgian debt agency now raised €10bn YTD of this year’s €41.2bn OLO funding need. A New Green OLO remains in the pipeline for later this year.
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Hungarian Q4 GDP printed at 2.1% Q/Q and 7.2% Y/Y, beating 5.7% Y/Y forecast. The growth composition isn’t available yet, but the statistical office indicated that market services were an important driver. Over the entire year 2021 the Hungarian Economy grew by 7.1%, following a -4.7% contraction due to the pandemic in 2020. Already before the publication of the preliminary growth data, MNB vice governor Virag said that the MNB will continue tightening policy in a predictable manner as inflation continues to surprise in the upside. Virag warned that economic participants should prepare for a period of sustained higher rates as the MNB will keep a restrictive policy approach even when inflation decelerates later as it wants to anchor inflation expectations. After modest losses over the previous days, the forint today rebounded to the EUR/HUF 355.25 area from opening levels near 357.5.
Polish economic activity in Q4 rose 1.7% Q/Q to reach a level of 7.3% Y/Y, slightly higher than expected. Details on the composition will be published on February 28. Polish January CPI rose 1.9% M/M to be up 9.2% Y/Y (was 8.6% in December). The figure was marginally softer than expected but still marks the highest reading since November 2000. Prices of food and drinks rose 2.6% M/M while prices related to dwellings rose 4.4% M/M, with the latter mainly due to higher electricity and gas prices (8.0% M/M). Transport related costs eased 2.7% M/M but were still 17.5% higher compared to the same period last year. The combination of solid eco data and a better risk sentiment propelled the zloty from an opening level near EUR/PLN 4.5475 to currently 4.5050.
