Markets
A relief rally swept across financial markets today. Stock markets rally more than 2% in Europe. They open flat on Wall Street but that’s because they already banked on improved sentiment late yesterday. None other than Donald Trump was responsible. The US president suggested in CBS News the war could end soon (though not this week) and floated a possible waiver to oil-related sanctions after having called with Russian president Putin. It pressured oil prices yesterday in late US dealings and continued to do so today. Brent oil slides to $91 per barrel, down 8% from yesterday’s close. Correlated commodities such as gas prices drop significantly too (Dutch TTF -15%). No one actually knows what sanctions the Trump administration is considering to ease or how soon “soon” really is. It makes us at least cautious in terms of the sustainability of today’s rally, particularly in European (risk) assets. To that end it’s worth nothing that the euro is unable to keep its early and all in all limited gains against the likes of the US dollar. EUR/USD hit an intraday high of 1.166, the best level since March 3, before returning to around opening levels of 1.163. The common currency also continues to bite the dust against GBP. EUR/GBP slides to 0.865 despite the interest rate differentials this time working against GBP. Gilt yields tank 10 bps at the front compared to 5 bps in Europe/Germany. We also note the fact that cross currency basis swaps since the war erupted actually moved in favour of both USD and GBP (although less dramatically, but still) compared to EUR. FX markets appear specifically worried for what an energy price spike could mean for the European mainland. With the UK not at all insulated from the matter, we continue to err to the side of caution for GBP. Technicals suggest a GBP recovery could go as far as EUR/GBP 0.86. G7 energy ministers meanwhile are meeting in Paris to continue a debate on a possible release of strategic oil reserves to alleviate the oil price spike. With Brent currently stabilizing – even dropping – they do well to keep the powder dry for as long as possible. US yields today eke out a couple of basis points in a bear steepening move (up to 3.8 bps at the long end). Economic data included an average 15.5k weekly ADP job gain in the four weeks ending February 21, matching the previous reading. Existing home sales shot up 1.7% m/m to 4.09m, topping expectations. Neither print affected FX or FI markets.
News & Views
Hungarian February inflation dropped more than expected. Headline inflation rose 0.1% M/M and 1.4% Y/, down from 0.3% M/M and 2.1% in January. As such, inflation dropped below the MNB inflation target range of 3% +/- 1pt tolerance band. Market expectations were for a figure near 1.7%. In a first analysis, the national bank of Hungary (MNB) analyzed that core inflation and core inflation ex indirect taxes both declined to 2.1% Y/Y. MNB also takes notice that ’incoming inflation data was lower than the projection in the December Inflation Report, driven by more favourable changes in the price of food and market services than expected’. Disinflation of all main product groups (except for fuels) contributed to the decline in the annual index. In a monthly perspective, the MNB indicates that monthly repricing was lower than the 2017-2020 average. The inflation of tradables declined to 2.1 Y/Y. Market services prices rose 0.4% M/M but slowed to 5.2% Y/Y from 5.7%. Forint short-term yields this morning eased a bit further after the favourable inflation release. In a stable global context, today’s inflation data probably would have rubberstamped an additional MNB rate cut at the March 24 meeting. However, with the MNB still giving weight to financial stability considerations, money markets mainly expect the MNB to hold rates unchanged for the foreseeable future. The easing of market tensions today allows to forint the regain some ground (EUR/HUF 385).
CPI inflation in Norway rose 0.6% M/M and 2.7% Y/Y down from 3.4% Y/Y last month. Underlying CPI-ATE inflation (ex. tax changes and energy) rose 0.7% M/M but the Y/Y figure also eased to 3% from 3.4%. The outcome was close to expectations. However, it came after a big upward surprise in January. The latter had made markets reconsider the room for the Norges Bank to gradually ease its policy rate (currently 4%) as still guided at the time of the end January policy meeting . Even so, markets currently still see a modest risk (+/- 35% chance) for the next NB move to be a rate hike rather than a rate cut. The Norwegian krone due to its energy-/oil-related profile over the previous week continued its rise against the euro that was already in place since the turn of the year. EUR/NOK currently trades near 11.14, testing the lowest levels (strongest for the krone) since July 2023.
 and floated a possible waiver to oil-related sanctions after having called with Russian president Putin.){kind=link}