No surprises today. The near-empty eco calendar and (near) blackout periods for central banks delivered the feared-for dull trading day. Not the slightest diversion to trigger some directional action. The only release worth mentioning were US weekly jobless claims. The traditionally volatile number printed… bang in line with forecasts at 230k with last week’s number upwardly revised from 225k to… 226k. German and US yields (10y tenors) arrived at next support levels in yesterday’s low volume rally and remain above them. Technical action sent them somewhat higher again. US yields add 3.2 bps to 6.9 bps in a daily perspective with the belly of the curve underperforming the wings. The US 10-yr yield holds above 3.42% which is 50% retracement on the August to October yield move higher. German yields rise by up to 4 bps with the 10-yr yield holding north of the October low at 1.77%. European stock markets are mixed with EUR/USD steady near 1.05.
Tomorrow doesn’t look that better. Chinese CPI inflation numbers will show that the country bucks the major global trend with analysts expecting a slowdown from 2.1% Y/Y to 1.6% Y/Y. They finally seemed to gently turn the corner to their very string zero-Covid policies, but this extreme stance since the start of the outbreak came at an economic cost. Absence of price pressure leaves scope for more fiscal and monetary stimulus even as growth could finally start picking up. European attention turns to the second early TLTRO redemption figure. Banks repaid €296bn on the first occasion (Nov 23) with over €1.8tn still outstanding. Recent changes to TLTRO modalities make them less attractive to hold to maturity. A faster wind down of TLTRO’s, together with the end to APP reinvestments from early next year onwards, will help shrink the central bank’s balance sheet and reduce excess liquidity in the system. From a policy normalization point of view, this is the elephant in the room next year rather than the pace of ECB rate hike and their peak levels. During US dealings, December University of Michigan consumer confidence is an harbinger for data points ahead. Especially consumer inflation expectations caught attention this year. They are expected unchanged at 4.9% and 3% for 1y and 5-10y respectively.
Hungarian inflation accelerated from 21.1% y/y to 22.5%, surpassing the 22% consensus estimate. Monthly dynamics remain very strong at 1.8% m/m. Core inflation rose from 22.3% to 23.9%. Price increases are bound to accelerate even further, if only because the government was forced to ditch a costly fuel price cap this week following nationwide gasoline shortages. Economic Development Minister Nagy said it may add 2-2.3 ppts to inflation. The room for Hungary’s central bank to lower the de facto policy rate, currently at 18%, anytime soon is non-existent. This is even more true with the government’s ongoing fiscal support. Apart from keeping the price caps on a range of other goods (staples, mortgages and student loans), it announced late yesterday a new 1.5tn HUF subsidized corporate loan programme offering loans at 5% max in order to avert a recession. Hungarian swap yields shot up between 48 and 84 bps with the front end underperforming after the CPI release. The forint gets a beating. EUR/HUF opened at 410.92, surged beyond resistance around 415.6 and is currently changing hands at 418.68.
Dutch officials are planning new export controls of chipmaking equipment to China, Bloomberg reported citing people familiar with the matter. An agreement could come next month already and would align Dutch trade rules more with the US with both sharing similar national-security concerns, they said. The latter has unveiled new efforts a few months ago to restrict Chinese access to its high-end technology. Next to the US, the Netherlands and Japan are world’s top suppliers of machinery and know-how needed to make advanced semiconductors. Dutch PM Rutte said that his country is coordinating the matter between the three as well as South-Korea.