Thu, Mar 30, 2023 @ 01:56 GMT
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Sunset Market Commentary


Markets started off in good spirits. European equities add 0.75%, Wall Street opens 0.2% higher. There weren’t any data scheduled for release but the European Commission’s updated forecasts helped support sentiment. Brussels turned more upbeat on the European economy, predicting a narrow escape from a recession and growth this year of 0.9% vs 0.3% previously. Reasons include a resilient labour market, the mild winter & high gas storage levels. As it happens, the Dutch gas TTF future (€52.05/MWh) is on track for the lowest close since September 2021. Growth for 2024 stayed at 1.5%. Inflation for this year and the next was brought down from 6.1% to a still-high 5.6% and from 2.6% to 2.5% respectively. Some ECB members took the floor today. Governing council member Centeno said the March forecasts will be very important in determining and communicating the path and peak of the policy rate. VP de Guindos underscored the ECB’s data dependence. He said they turned a bit more positive on the economy as well. Fed’s Bowman said the central bank will keep hiking rates to bring inflation back down to 2%. She cited the too-strong labour market. Their comments didn’t really affect core bond markets though. Investors are counting down to tomorrow’s US January CPI reading. The US yield curve’s inversion deepens a tad with the front end adding a few bps (1.6-3.2 bps). The 2y yield (4.54%) is further closing in on its previous cycle high (4.72% close). German yields moves are similar but in more choppy trading. Japan’s 10y yield closed at about the 0.50% upper bound as we go into the official announcement of the new BoJ governor tomorrow. The yen is the notable underperformer in FX space though. USD/JPY rallies to 132.77, testing recent highs/resistance levels. EUR/JPY soars to 141.77. Other currency pairs trade muted. EUR/USD was testing the 1.068 support level this morning … and is still there 10 hours later. It is a strong reference though, coinciding with the 23.6% dollar recovery on the Sep 2022-Feb 2023 decline and the lower bound of the upward sloping EUR/USD trend channel. The trade-weighted greenback holds near recent highs at around 103.67. Sterling awaits a load of economic data later this week, including the labour market report, January inflation and retail sales. That doesn’t prevent the pound from gaining a few ticks on the upbeat risk environment. EUR/GBP again went for a test of the 0.882 support before paring losses to 0.884 after a break lower failed.

News & Views

Inflation in Switzerland in January reaccelerated at a faster pace than expected. Headline inflation rose 0.6% M/M bringing the Y/Y measure at 3.3% (compared with -0.2% M/M and 2.8% Y/Y in December). The rise was mainly due to higher electricity and gas prices. Prices at restaurants and hotels also rose substantially (2.1% M/M). Goods prices gained 1.1% M/M and 5.9% Y/Y. For services this was respectively 0.3% M/M and 1.3% Y/Y. Core inflation was unchanged from December, but 2.2% higher compared to the same month last year. While Swiss inflation stays low compared the other European countries, (headline and core) inflation holding above the 0.0%/2.0% zone remains a source of concern for the Swiss National Bank. The SNB raised the policy rate by a cumulative 175 bps starting in June of last year to currently 1.0%. The next SNB policy meeting is scheduled on March 23. Above target inflation and decisive action from the ECB keep the debate open on even an additional 50 bps SNB hike. After some modest losses mid-January the Swiss franc recently rebounded back below the EUR/CHF parity (currently 0.9855).

The current account balance in Poland deteriorated in December to a deficit of PLN 11.8 bln consisting amongst others of a negative trade balance of goods (PLN 12.7 bln), negative primary and secondary income balance (PLN 11.8 bln) and positive balance of services (PLN 12.7 bln). With respect to trading of goods, volumes of both exports and imports declined  substantially from November, but still were respectively 13.0% and 13.7% higher compared to December 2021. The increase in the value of exports was driven primarily by the performance of the automotive sector. Fuel continued to have the largest impact on the growth of imports. The trade balance deficit at PLN 12.7 bln was PLN 2.2 bigger compared to the same month last year. While smaller than the peak deficit in March 2022, the trade deficit remains rather high by historical standards. The polish zloty recently underperformed the Czech koruna and the Hungarian forint and this trend continued today. The zloty weakened to currently trade at EUR/PLN 4.7925.

KBC Bank
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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