Markets
Core bonds took a breather after last week’s violent selloff. Japanese markets this morning suggested otherwise though. The long end was pressured strongly with yields rising up to 20 bps at some point on a combination of another increase in oil prices and the Takaichi administration considering an extra debt-funded budget for relief measures. Net daily changes were capped at around 9 bps (40-yr) eventually. European investors showed little appetite to build on that early Asian oil price gains (of as much as 2.5% to $112/b). The price of the black gold was already easing marginally before a report of the semi-official Iranian Tasnim news agency accelerated the drop. It said that the US is proposing a temporary waiver on the oil sanctions that it imposes on the country, which would remain in place until a final deal is reached. The news follows after US president Trump in recent days raised pressure on Iran, saying it “better get moving, FAST, or there won’t be anything left of them.” Leaks cited by Al Arabiya further said “Iran is seeking a long, multi-stage truce and a gradual, secure reopening of the Strait of Hormuz as part of a revised proposal. The report said Tehran is prepared to accept a long-term nuclear freeze instead of full dismantlement and wants enriched uranium transferred unconditionally to Russia rather than the US.” A barrel of Brent is currently trading around $108 barrier. That’s offering Bunds some respite. Front end yields ease 4 bps. Treasury yields are down less than 2 bps. Gilts outperform with net daily changes varying between -7 and -7.5 bps across the curve. UK bonds were hit the hardest in the recent global rout with politics entering a toxic cocktail of inflation and fiscal worries. Today’s minor recovery allows sterling to claw back as well. EUR/GBP retreats to around 0.87. GBP/USD bounces back towards 1.34. Most other major USD pairs see downward pressure on the dollar side of the equation. EUR/USD snaps a four-day losing streak by appreciating to 1.165. USD/JPY pared most of the early (Asian) gains to change hands nearly unchanged around 158.7. Stock markets rebounded on the (unconfirmed) geopolitical rumours. The EuroStoxx50 turned losses into a 0.6% gain. Wall Street opens flat.
News & Views
Inflation expectations among Swedish money market players eased in May compared to April, the Origo Group survey showed today. Respondents’ annual inflation expectations for the 1-y horizon moderated to 1.6% from 1.7%. Expectations on CPIF inflation (with fixed interest rate) also declined for the 2-y (1.9% from 2.1%) and the 5-y (2% from 2.2%) horizon. Growth expectations barely changed with 1-year ahead GDP growth seen at 2.2% and 2-year ahead growth at 2.3%. Respondents see the policy rate at 1.9% in a 1-y horizon and at 2.1% (from 2.2%) at a 24-months horizon. The survey comes as recent ‘hard’ inflation data for both CPIF inflation and the core measure in April printed at very low levels at respectively -0.6% M/M and 0.8% Y/Y and -0.8% M/M and 0.1% Y/Y. The low inflation level was at least partially due to a decline in VAT on food at the start of April. Still, readings well below target bought the Swedish Riksbank time to assess the impact of higher energy prices. The RB kept a guarded approach leaving the policy rate at 1.75% on May 7. It ‘guided’ that ‘the current level of the policy rate gives the Riksbank a good initial position to adjust monetary policy if required to safeguard the inflation target.’ Markets only discount a 25 bps hike by September. The krone recently traded defensively with EUR/SEK again nearing the 11 mark.
The Swiss State Secretariate of Economic Affairs revealed GDP growth (adjusted for sports events) accelerating to a quarterly pace of 0.5%, compared to 0.2% in Q4 of last year. Markets expected a more modest 0.4%. The flash estimated didn’t provide much details, but the report indicates that both industrial and services sectors contributed to growth. More detailed growth figures are expected to be published early June. After testing the EUR/CHF 0.90 barrier in the early stages of the conflict in the Middle East, the Swiss franc in the second half of March lost some modest ground as the SNB reiterated its preparedness to intervene in the FX market as necessary. EUR/CHF since end March holds a range between 0.9265 and 0.913 and currently again trades near the bottom of that range (stronger side for the CHF).
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