Sunset Market Commentary

Markets

Economic data, including key US labour market and inflation data, of late mostly failed to inspire any directional trading trends. Multiple (political) event risk, including the US military action in Venezuela, protests challenging the government in Iran, a flaring up of the fight on Fed independence and an expected ruling by the US supreme Court on president Trump’s tariffs, for now also fail to trigger any major market volatility. Or, are they seen as too unpredictable for investors to set up outright directional bets, especially in FX and interest rate markets? Until now this agnosticism also kept equity markets ‘paralyzed’ near record levels. Admittedly, anticipating that any of these risks would unsettle reigning risk-on sentiment didn’t yield anything. On the contrary. In this context, metals turned out to gain some kind of safe haven status, combining the feature of scarcity together with a narrative of LT indispensability to address needs related to energy transition and/or AI development. Underlying uncertainty on the dollar also supports the case for holding these metals. At least one regional ‘event risk’ was clarified today. According to the leader of the LDP party, Japanese PM Takaichi will call snap elections in the parliamentary session next week. Market anticipation that new elections would only reinforce Takaichi’s aim for ample deficit spending recently weight on both Japanese government bonds and the yen. The yen before the announcement at USD/JPY 159.45 touched the weakest level against the US currency since July 2024. A potential attack on the 160 barrier, at least of now, was blocked as both Fin Min Katayama and FX official Mimura warned they might take action as yen moves become excessive and not in line with economic fundamentals. The yen rebounded slightly to currently trade near USD/JPY 158.65.

In the US, both PPI producer prices (final demand at 0.2% M/M and 3% Y/Y, ex food and energy 0.0% M/M and 3% Y/Y) and November retail sales (0.6% M/M) printed on the stronger side of expectations, but hardly left any traces on interest rate markets. US yields are ceding 2-3 bps across the curve, probably driven by a mild risk-off. For EMU/Germans yields daily changes are less than 2 bps. Interesting as a pointer for investor appetite for sovereign credit, France today launched a €10 bln 20-y OAT (May 2046) at a spread of 5 bps over the May 2045 OAT and with books said to have been well in excess of € 100 bln! The Eurostoxx 50 (currently -0.2%) this morning even touched a minor now record. US indices show a more hesitant picture (S&P 500 -0.6%) as the earnings season kicks off with major US banks reporting. Investors also look out whether the US Supreme Court today will give an opinion on the Trump tariffs. Oil extends its rebound as markets are pondering the political developments in Iran, annex a potential reaction of the US. Brent oil at $66 p/b trades at the highest levels since end October and to be compared with a December low below $59 p/b. Except for the moves in the yen, there is very little to report on most other major FX cross rates. DXY eases slightly (99.05). EUR/USD is locked in a tight range near 1.165.

News & Views

Hungarian central bank (MNB) deputy governor Kirali pushed back against rapid rate cut bets after yesterday’s inflation numbers. Inflation slowed from 3.8% Y/Y to 3.2% Y/Y but the MNB is looking for a more consistent move towards the 3% target rather than the current one-off. He highlighted the importance of the central bank’s credibility and underscored the support of recent HUF stability in moderating inflation. On the political side, a new opinion poll with a margin of error of 3.5 ppt showed Hungarian opposition party Tisza extending its lead over PM Orban’s Fidesz party to 51% vs 39%. Back in November, Tisza had a 10-point lead for elections which have yesterday been set for April 12. Hungarian swap rates extend yesterday’s comeback, rebounding by up to 3 bps at the front end of the curve. EUR/HUF is unchanged at 386.50.

US Treasury Secretary Bessent today met with South Korean deputy PM and finance minister Koo Yun Cheol to discuss the critical minerals ministerial meeting and ongoing market developments in Korea. The latter centered around the recent depreciation of the Korean won which Bessent believes is not in line with Korea’s strong economic fundamentals. USD/KRW fell from recent highs/key resistance around 1480 towards 1470. Earlier today, Koo Yun Cheol said that the government will focus on improving economic fundamentals, short-term market measures and flow management to curb excessive one-way moves in the won.