HomeContributorsFundamental AnalysisGreenback Tried to Bank on Safe Haven Status, But Didn't Really Shine

Greenback Tried to Bank on Safe Haven Status, But Didn’t Really Shine


Q1 First Republic earnings sent the regional lender’s stock price in a tail spin. Huge deposit outflows (>$100bn) and a refusal to take analyst questions or provide guidance for the remainder of the year confirm that the company is on death row “exploring strategic options” in the end game. First Republic is the exception to the rule for now, with other regional lenders managing to restore confidence after the mid-March panic. PacWest was the latest example, reporting a small deposit increase yesterday and propelling its share price. The First Republic earnings nevertheless put a bad taste in investors’ mouth. Especially in combination with some disappointing US eco data. US consumer confidence reached its lowest level since July last year in April (101.3 from 104 vs 104 expected). The decline was solely due to a more pessimistic outlook as the fallout from the mid-March regional banking crisis took its toll (expectations down to 68.1 from 74) while the present situation index, focusing on current labour market etc., rose from 148.9 to 151.1. The April Richmond Fed manufacturing index fell from -5 to -10 (vs -8 expected). The combination of both created a risk-off market environment especially from the start of US dealings. US yields lost 5.3 bps (30-yr) to 13.5 bps (2-yr) in a daily perspective. Changes on the German curve varied between 10.7 bps (30-yr) and 13.5 bps (2-yr). Part of the European moves were catching-up with US action on Monday evening (publication Q1 First Republic results around US close). Main European equity indices lost 0.5% or more with key US gauges tumbling 1% (Dow) to 2% (Nasdaq). The greenback tried to bank on its safe haven status, but didn’t really shine. The US nature of yesterday’s market stress serves as strong counterweight. EUR/USD closed at 1.0973 after testing the YTD highs around 1.1070 early on. The tradeweighted dollar rebounded from 101.26 to 101.95. Technical USD pictures didn’t improve. Today’s eco calendar is less enticing with only march US durable goods orders. The US Treasury continues its end-of-month refinancing operation with a $43bn 5-yr Note auction. Yesterday’s $42bn 2-yr sale tailed slightly with the 2.68 bid cover in line with the recent average (2.66). Overall market sentiment will be the key driver ahead of European and US GDP and inflation numbers tomorrow and on Friday. For the moment, we don’t read too much into yesterday’s risk scare.

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Australian Q1 headline inflation slowed slightly less than expected to 1.4% Q/Q and 7% Y/Y, down from 1.9% Y/Y and 7.8% in Q4 2022. Measures of core inflation printed below consensus though (trimmed mean 1.2% Q/Q and 6.6% Y/Y from 6.9% in Q4). The Australian Bureau of Statistics said that most significant price rises (quarterly) were recorded in medical and hospital services (+4.2%), tertiary education (+9.7%), gas and other household fuels (+14.3%), and domestic holiday travel and accommodation (+4.7%). Goods annual inflation eased after two years of steady increases, from 9.5% to 7.6%. However, services annual inflation recorded its largest rise since 2001 (6.1% Y/Y). The market currently expects the RBA to keep its policy rate unchanged at 3.6% next week, but persistently high services inflation might be a source of debate. The 2-y Australian government bond yield this morning dropped 19 bps, but part of this move already occurred before the CPI release. AUD/USD dropped to the 0.661 area.

The Hungarian Central Bank (MNB) yesterday took a first step in winding down emergency measures put in place in October last year. The significant improvement of the risk environment, including Hungary’s risk perception, triggered the decision to narrow the interest rate corridor by reducing the overnight collateralized borrowing rate to 20.5% from 25.%. The MPC still deems it necessary to maintain the current level of the base rate (13%) over a prolonged period to ensure that inflation expectations are anchored and the inflation target is achieved in a sustainable manner. The MNB also closely monitors the effects of international financial market developments. The central bank will take into account the persistence of improvements in risk perception at the following policy meetings before making a decision to setting the interest rate conditions of overnight instruments. So, the O/N deposit rate for now is kept unchanged at 18%. Vice governor Virage indicated that the MNB will be cautious when assessing changes at upcoming meetings. The forint weakened from an intraday top of EUR/HUF 374.5 to close near EUR/HUF 377.75. However, given the global risk-off the loss was reasonable.

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