A sense of calm returned to markets after the extreme risk-off repositioning all day yesterday. The Asian trading session was still marked by wild intraday swings, with short-term US yields at some point up 20 bps before suddenly collapsing 25 bps only to recover again. The 2-y is currently up 36 bps, recouping more than half of the loss incurred on Monday. US February inflation came in at 0.4% m/m for the headline reading and 0.5% in the core measure. The latter was a basis point higher than expected. The yearly measures (6% headline, 5.5% core) hit the bar exactly. US money markets discount an 80% chance of a 25 bps rate increase next week. The safe haven bid in other parts of the US yield curve eased as well with moves ranging from 5 bps (30-y) to 16.4 bps (5-y). German/European (swap) yields gapped lower at the open but recovered swiftly thereafter. Current changes vary between 16-27 bps in Germany with the front-end underperforming. European swap yields add less (8-12.1 bps) but didn’t suffer as much as Bund yields did. Money markets in the euro area have raised bets for the terminal rate again to <3.5% with a(n in our view unjustified) less than 50 bps hike priced in for Thursday’s ECB meeting. UK gilt yields rebound between 9.5 bps and 13.7 bps in a similar inversion deepener in an obvious trend-joining move. However, a solid UK labour report supported yields as well. The jobless rate stabilized at 3.7% in January, defying expectations for a small uptick. Employment in the three months through January rose by 65k vs 53k expected with a preliminary February reading also topping estimates. Weekly earnings growth (ex. bonus) came in more or less as expected, at 6.5%.
The absence of an upward US CPI surprise is welcomed by the riskier parts of the markets. One can only imagine the carnage if inflation came in even hotter, putting the Fed between a rock and a hard place (if it isn’t there already). Stocks in Europe and the US rebound. The Euro Stoxx 50 rises more than 2%. The index is trying to recoup support-turned-into-resistance at around 4172.95 – the neckline of a double top formation. Wall Street adds 1.37-2.19% with the financial subindex taking the lead. An improved risk sentiment doesn’t help the likes of oil though. Brent at some point was down 2%, losing the $80/b mark. A gold surge over the past few days eases today. Yet, underscoring the lingering nervousness, once ounce of the precious metal is still being sold at levels of around $1900. Turning to currency markets, the US dollar is catching a (tiny) bid. EUR/USD bounced of 1.0735 resistance to trade a tad lower at 1.072. The trade-weighted DXY inches up marginally from 103.67 to 103.77 and USD/JPY rises to 134.85 (from 133.21). Sterling is unable to bank on the labour market report against the euro or the dollar as the yield rebound in the latter two regions outpaces the UK. EUR/GBP oscillates around 0.88. The Swedish crown rallies to EUR/SEK 11.268 though that remains one of the weakest levels in history. Central-European currencies trade mixed. The Polish zloty and the Czech koruna underperform. The Hungarian forint initially lost further ground to hit the lowest level since mid-January. After hitting EUR/HUF 396, a turnaround kicked in, bringing the pair back sub 390 currently.News & Views
According to the Czech Statistical Office, real retail sales in the country in January increased by 0.3% M/M as sales of automotive fuel increased by 2.5% and food sales gained 1.7%. Sales of non-food goods decreased by 1.1% M/M. Even so, real sales still were 7.7% lower compared to the same month last year, the ninth successive month of declining sales. In December and November Y/Y sales declined 8.1% and 9.1% respectively. Negative Y/Y figures still were recorded for household equipment (minus 14.8%), sales of cultural and recreation goods (minus 10.0%), information and communication equipment (minus 3.7%) and dispensing chemist and medical goods (minus 2.6%). On the other hand, sales in retail clothing, footwear and leather goods increased by 5.8% Y/Y and sales of cosmetic articles rose by 1.8%. Sales of food also decreased by 8.0% Y/Y. Sales via mail order houses or via internet decreased by 11.9 Y/Y. The Czech koruna today continued its recent correction of multi-year peak levels reached early this month. EUR/CZK trades near 23.81 compared to the EUR/CZK 24.35 area early this month.