This week turned out far more interesting than one could have guessed at the start. The economic calendar was empty but for the meeting minutes from the Fed and ECB March policy gathering. And they had quite some market implications. Those from the Fed gave us a sneak peek at the balance sheet roll-off blueprint. It intends to shed bonds at a cruising speed of $95bn per month at minimum with a three-month break-in period. Hawkish comments from Fed heavyweight and now-former dove Brainard suggested the process could start in May. Economic data this week including the services ISM and weekly jobless claims suggest the US is more than resilient enough. That rapid quantitative tightening caused a weekly bear steepening in US yields. The short end (2y) is up 6 bps for the week, realizing all those gains today. Long US bond yields jumped 28 bps (30y) to 31 bps (10y) higher, today’s +3bps moves included. Back in Frankfurt, “many” ECB members wanted immediate further steps to normalize policy in March. “Some” argued for a hard end date of net purchases by the summer or risk falling behind the curve. Doing so would clear the way for a rate hike in Q3. With inflation having shot up again in March to 7.5%, the hawks have the numbers on their side. We look out for them to leave their mark on the ECB policy meeting next week. European swap yields this week rose sharply, owing a big chunk to today’s bear flattener (2y: +8.5 bps, 10y: +5.5 bps, surpasses 2015 1.37% resistance). In a weekly perspective, the 2y added almost 18 bps while the 10y jumped over 20 bps. All of the maturities in between hit new cycle and multi-year highs. Aggressive central bank talk weighed on equities: the S&P500 inched 1.4% lower, the EuroStoxx50 is down 2.2% for the week. The euro will probably try to forget the week as soon as possible. EUR/USD slipped from 1.104 on Monday to 1.0852 today in a losing streak that dates back to last week. Unlike bonds, the euro is cautious to frontrun the ECB’s policy intentions. It wants money on the table. It’s also the result of a strong dollar. The trade-weighted DXY is heavily testing the 100 figure for the first time since May 2020. The technical picture of EUR/USD does not look well either. A return to the 2022 low of 1.0806 is likely. Trading in EUR/GBP followed EUR/USD in lockstep for most of the week, except today. EUR/GBP rises from an intraday low at 0.8307 to 0.8335 currently. Perhaps we’re seeing some spillovers from the strong USD in cable. GBP/USD slides towards the 1.30 support zone. Next week provides us with a thorough economic update on the UK (CPI, labour market report, industrial production). Perhaps this gives sterling some impetus. For Central-Europe we retain the HUF smackdown in the wake of Orban’s re-election and the EU kicking off the rule-of-law procedure while the NBP in Poland raised rates by a more-than-expected 100 bps with more to come.
The Food Price Index of the Agriculture Organisation of the UN (FAO) in March reached the highest level since its inception in 1990. The index rose an additional 12.6% after already reaching a record level in February. The index stands 33.6% higher compared to March 2021. Cereals rose 17.1% on a monthly basis largely driven by the war in Ukraine. Russian and Ukraine combined account for around 30% and 20% of global wheat (+19.7% m/m) and maize (19.1% m/m) exports according to FAO. Vegetable oils jumped 23.2% m/m. More modest rises were recorded for sugar (6.7% m/m), meat (4.8%, also all-time high) and dairy (+2.6% m/m, but also up 23.6% y/y).
Hungarian headline inflation in March printed slightly lower than expected. However, at 1.0% M/M and 8.5% Y/Y (8.3% Y/Y in February) price pressures persist. Even more, core CPI as published by the MNB rose further from 8.1% Y/Y tot 9.1% Y/Y. The MNB indicated that prices for three main groups rose at a substantially faster pace than can be expected according to the seasonal pattern. Industrial goods (1.2% M/M & 8.4% Y/Y) prices were still propelled by the global shortage of semiconductors and the rise in commodity prices. Market services prices rose 0.8% M/M and 7.2%Y/Y. Food gained 2.2% M/M and 13.9% Y/Y. The forint rebounds to EUR/HUF 375.75, compared to a level of EUR/HUF 382 intraday yesterday. However, this was probably inspired by a statement of the Finance Ministry that suggested a positive developed in talks with the EU on the ‘rule of law’ procedure, rather than by the data.