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Sunset Market Commentary


Trading on almost all markets was conditional to the publication of the US January CPI as this report was supposed provide the ‘ultimate reality check’ on the Fed’s (and by extension other central bankers’) call to continue raising rates and to keep them at a higher level for quite some time. The report was very close to expectations. Headline inflation printed at 0.5% M/M and 6.4% Y/Y (from 6.5%). Core inflation rose at a 0.4% monthly pace (similar to December) to be 5.6% higher compared to the same month last year (was 5.7%). Housing (0.8% M/M) was the most important contributor to the January price rise. Food prices rose 0.5% M/M and transportation costs 0.4%. Price declines were registered for used cars (-1.9%,) and medical care (-0.4%) but the weight of these items is relatively small. Understandably, markets initially didn’t know which card to play. In volatile trading the US yield curve currently continues its bearish inversion with the 2-y gaining 7 bps, the 10-y +3 bps while the 30-y yield trades little changed. German yields are rising 4/6 bps points across the curve. ECB’s Makhlouf indicated that the ECB could raise its policy rate above 3.50% and leave it there for a while. The euro 2-y swap (3.45%)  and 2-y Bund yield (2.83) are setting new cycle peak levels. On equity markets, the Euro Stoxx 50 tested recent peak (4275) but higher yields post US CPI blocked further gains (currently unchanged). US indices erased opening losses. Oil trader marginally lower (Brent $85.75 p/b) even as OPEC sees the market in 2023 slightly tighter both on a higher demand and lower supply.• On FX markets, the dollar also show some nervous swings immediately after the CPI release. Finally, the risk-driven decline came to a halt. USD/JPY extends its recent (partially yen-driven) rebound and is currently testing first resistance near 132.90. EUR/USD reversed an initially trip to the high 1.07 area to currently trade unchanged near 1.073. A bit strangely, the US CPI report also aborted further gains of sterling, not only against the dollar, but also against the euro. A strong UK labour market report (+ 102k jobs in January; weekly earnings ex-bonus at 6.7%) made markets question recent rather soft BoE guidance post the February policy meeting. The 2-y UK yield is gaining 17 bps (was 7 bps before the US CPI). Markets are growing ever more confident that the BoE will (have to) raise its policy rate to 4.50% in the summer. EUR/GBP over the previous days was captured in a ST downtrend channel and today filled bids in the 0.881 area, just to reverse this sterling gain after the US data (0.8835). Cable even loses a few ticks in a daily perspective (1.2130, after an intraday top near 1.2250).

News & Views

The Hungarian Q4 flash GDP estimate showed growth contracting by 0.4% Q/Q, somewhat less than feared (-1.1% Q/Q) but still a second consecutive negative number (downward revision to -0.7% Q/Q in Q3) putting the country in a technical recession. In (NSA) Y/Y terms, GDP grew by 0.4%. In 2022, the volume of GDP grew by 4.6%. In a brief comment, the Hungarian Central Statistical Office only elaborates somewhat on the Y/Y-release. There was significant growth especially in the manufacture of motor vehicles, trailers and semi-trailers, as well as that of electrical equipment within industry and mostly in real estate activities as well as transportation and storage among market services. A considerable downturn in agriculture slowed the Y/Y-increase. A detailed GDP-release will be published on March 2. The Hungarian forint holds its remarkable momentum, trading at EUR/HUF 380 for the first time since May last year. Preliminary Polish GDP numbers, showed a 2.4% Q/Q GDP decline in the final three months of 2022 with the Y/Y-number printing at 2%. Details will be available on Feb 28. The Polish zloty joins today’s CE-momentum with EUR/PLN dropping from 4.8 (weakest PLN since October) towards 4.76.

The Turkish government ordered private pension funds to boost their holdings of Turkish stocks to stop the post-earthquake decline (cumulative -15% on Feb 7&8) when trading is expected to resume tomorrow. Pension funds will be required to allocate 30% of the funds the government contributes to individual pension contributions to Turkish stocks instead of 10% previously. The weighting of a single stock in their portfolio will also be increased from 1% to 5%.

KBC Bank
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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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