With few important data releases, today was supposed to be a transitory trading session after yesterday’s (very disappointing) US manufacturing ISM and ahead of the key US Services ISM and labour market data later this week. However an empty calendar doesn’t by definition mean investors abstaining from further finetuning positions. After yesterday’s weak ISM, one could have expected investors to give some more consideration to lower growth rather than to inflation risks. However, this wasn’t really the case. In technical trading, US yields are gaining 5/8 bps across the curve. The US 2-y still struggles to hold above the 4% psychological barrier (4.02%). The 10-y yield (3.48%) maintains some breathing space above the key 3.40/3.32% key support area. On this side of the Atlantic, German yields show a similar pattern, rising between 6 bps (2-y) and 8.5 bps (10/30-y). In a broader perspective, core bond yields are building some kind of sideways pattern at lower levels compared to the peak levels reached early March. This ‘relative loosing’ combined with receding event risk, continues to support equities. The Eurostoxx 50 today jumped above the early March YTD top and even nears the end 2021 multi-year peak. US indices also open little changed. Interesting to see the (equity) market reaction in case of stronger than expected US data later this week. In this respect, already keep an eye at JOLTS job openings, to be released after finishing this report. Oil maintains yesterday’s jump higher (Brent $85.5/b).
For USD trading, today’s session really marked some kind of interlude with mostly range trading between the established barriers. DXY hovers near the 102 big figure. EUR/USD tried a first ‘real’ attack on the 1.0930 resistance, but the test was rejected, even despite a constructive global risk sentiment (currently 1.089). USD/JPY gains a few ticks (132.9), but also didn’t break any technically relevant level. Of late, sterling was an area of remarkable calm, both in risk-on and risk-off episodes. This pattern was quite abruptly overthrown today. EUR/GBP nosedived from the 0.878 area to currently change hands near 0.873. The key 0.8720 support is within reach. To be honest, we didn’t see the exact trigger. The move occurred when headlines from BoE’s Tenreyro hit the screens. However, she firmly held to her well-known highly dovish stance as she raised the case for ‘an earlier and faster reversal’ of the current hiking cycle to prevent inflation to drop below 2% later in the BoE’s policy horizon. It didn’t stop the sterling ‘break-out’. Markets are maybe repositioning for a more positive (less negative) UK growth outlook. However, we’re convinced that this will change the BoE’s (dovish) reaction function anytime soon.
The ECB published results of its February Consumer Expectations Survey. Median expectations for inflation over the next 12 months continued to decline, moving down from 4.9% in January to 4.6%. Expectations for inflation three years ahead edged down from 2.5% to 2.4%. Consumers expected their nominal income to grow by 1.2% over the next 12 months, down from 1.3% in January. Expectations for nominal spending growth over the next 12 months rose slightly to 3.9%, from 3.8% in January. Economic growth expectations for the next 12 months continued to increase, rising to -0.9% from -1.2% in January 2023. Expectations for the unemployment rate 12 months ahead declined to 11.5%, compared with 11.6% in January. Consumers expected growth in the price of their home over the next 12 months to increase slightly to 2.6%, compared with 2.5% in January. Expectations for mortgage interest rates 12 months ahead rose slightly to 5%.
Swedish housing starts in apartments and single-house families are expected to half this year to 25.5k, according to the nation’s construction federation. The new forecast in its bi-annual report compares to 38.5k put forward last fall. Housing construction has not been this low in a decade. Rising interest rates are the main reason with the federation expecting the Riksbank to raise policy rates even further to 4%, compared to currently 3%. The grim situation also affects employment in the construction industry. The number of employed people is estimated to decrease by 21k between 2022 and 2024. Overall, Swedish GDP is forecast to decrease by 1.6% in 2023 – to reverse to an increase of 1.2% in 2024. The Swedish krone holds near historically low levels around EUR/SEK 11.30. The 2019 top of 11.43 is final resistance ahead of the 2009 top at 11.79