Markets
Since the start of the conflict in the Middle East, markets this week already discounted a first bunch of risks related to energy supply, inflation and other sources of potential damage for the overall economy. A measured assessment simply remains illusive. However, for this kind of integrated risk-off move to reverse, markets need a clear perspective on an end game or an educated guess on how long this uncertainty might last. However this kind of visibility apparently won’t be available anytime soon. In the mean time, all kind of noise and rumors from “well-informed sources” are swirling, pushing markets back and forth. We pick out some. US president Trump ‘engaging’ the US to escort tankers in the Strait of Hormuz and/or providing financial insurance. The NYT reporting Iran indirectly reached out to the CIA to look for terms end the war (later denied by Iran). In the meantime war headlines continuously flashing on the screens, including on Turkey intercepting a projectile fired from Iran. Later, also US Secretary of Defense, Pete Hegseth repeated that they haven’t reached a mission accomplished situation. Of course, the conflict in the Middle East isn’t the only source of uncertainty investors have to cope with. At the start of US dealings, US Treasury Secretary Bessent indicated that the US might move to a global trade tariff of 15% still this week. Just to be followed by another headline suggesting the EU might be exempt from that US universal tariff, evidently again referring to people familiar with the matter. This chaotic news complex left investors at different markets drawing mixed conclusions. European equities (EuroStoxx 50), after losing abound 6% this week, are rebounding 1.5%. US indices also open with minor gains. Energy markets, a key source of uncertainty and inflation fears, show a mixed picture, with the Dutch gas reference contract easing from €60+/MWh levels to currently trade near €50/Mwh. At the same time, Brent oil holds well north of $80/b. After the recent bear steeping, mirroring the Fed’s and ECB’s inflation concerns, EMU and US interest rate markets apparently reached a first reflation point. German yields are changing between -1 bp (2-y) and +2 bps (30-y). (Much) too early to draw any conclusions. US yields are changing less than 2 bps across the curve. February ADP US private job growth printed at a solid 63k, but was understandably largely ignored. The US Services ISM might face a similar fate later today. On FX markets, the ‘USD safe haven run’ is taking a breather. DXY eases back below 99 (98.8). EUR/USD shows tentative signs of bottoming after touching an new YTD low yesterday (currently 1.1635). The yen also gained modestly (USD/JPY 157.3 from 157.75). Japanese Fin Min Katayama reiterated that the government might act to address excessive currency moves.
News & Views
Czech inflation fell by 0.1% M/M in February with the headline number slowing further below the 2% inflation target: from 1.6% Y/Y to 1.4% Y/Y. Details showed food and non-alcoholic beverage prices falling by 1.5% M/M with annual price growth in that category slowing from 1.3% to 0.4%. Energy prices were flat on the month to be 7.8% lower compared to last year. Underlying core inflation measures remain sticky above the CNB-target, ranging between 2.7% Y/Y and 3.1% Y/Y. Czech goods prices fell 0.5% in February (-0.7% Y/Y) but services inflation remains extremely sticky at 0.5% M/M and 4.5% Y/Y. In the global turmoil, the Czech market didn’t respond to the more benign numbers. Czech National Bank deputy governor Frait today said that recent global developments may limit room for a potential slight easing of Czech monetary policy if major central banks refrain from lowering their interest rates. EUR/CZK holds below first resistance at 24.40 today.
Swiss prices increased for the first time since June, rising by 0.6% M/M in February. On an annual level, price growth remained the same at 0.1%. The monthly increase is due to several factors including rising prices for housing rentals and for air transport. Hotels and other accommodation providers also recorded a price increase, as did international package holidays. Prices for food and vegetable juices fell. Swiss core inflation, excluding fresh and seasonal products, energy and fuel rose by 0.2% M/M and 0.4% Y/Y. Goods prices rose by 0.2% M/M (-1.4% Y/Y) while services prices increased by 0.9% M/M (1% Y/Y). It’s the final print before the March SNB meeting. With the policy stuck at the 0% border, focus went to the CHF-rate recently, prompting strong verbal interventions by the central bank. SNB vice-president Martin today repeated that willingness and readiness which is higher given the recent political events. The Swiss franc nevertheless holds below EUR/CHF 0.91 at historically strong levels.
