Markets
The Iran headline roulette has been doing overtime the past days. Over the weekend, it spit out news about fighting between Israel and Hezbollah which triggered retaliation by Iran against Israel and afterwards the other way around. The escalation prompted a complete ban by Houthis (part of the “axis of resistance”) on Israel in the Red Sea mainly by control over de Bab-el-Mandeb straight. Brent crude jumped from a $93/close last week to $98/b, before US president Trump stepped in. He claimed that he is calling all shots and that Israel and Iran would look for an immediate cease-fire. Later, both Israel and Iran declared an end to military operations which pulled the oil price back towards $94/b. However, Israel simultaneously indicated that it hasn’t reached its objectives towards dismantling Hezbollah suggesting that the risk of escalation remains extremely high. Intraday moves in oil prices drove action on other markets with core bonds yields initially adding up to 5 bps. As US trading gets going, changes on yield curves are negligible. EUR/USD tested the 1.15 big figure following Friday’s break below 1.16 before rebounding to 1.1544 as oil prices drop and Friday’s equity market correction didn’t continue after the opening bell. The EuroStoxx 50 started over 1% weaker following Friday’s heavy AI-correction, but is currently flat. US equities open up to 1.5% for the Nasdaq with investors apparently taking Nvidia CEO Jensen Huang’s advise to “buy the dip”. For the time being, we err on the side of a more profound correction especially if this week’s US inflation numbers (Wednesday) trigger more hawkish Fed repositioning bets. The US mid-month refinancing operation (3, 10, 30) is another risk factor. Today and tomorrow’s empty eco calendars nevertheless leave space for more headline-swings with the impact of Friday’s SpaceX IPO also added to the equation. They provide some kind of smoke screen to underlying economic developments.
News & Views
Czech industrial production and orders continued to grow slightly in April. Industrial production in real terms increased by 1.4% M/M and 1.5% Y/Y. The increase was driven by manufacturing of motor vehicles and their spare parts and by computer, electronics and optical products amongst others. A negative impact on production was registered from mining and quarrying, and repair and installation of equipment and in Food and beverages production. The value of new orders at current prices increased by 3.3% M/M and 2.7% Y/Y. New non-domestic orders increased by 3.5% Y/Y. Domestic new orders recorded an increase by 1.1%. The average registered number of employees in industry decreased by 1% Y/Y. At the same time, construction activity remained in strong April rising 0.6% M/M and 7.7% Y/Y. The number of building permits granted increased by 14.7% and the number of started dwellings even increased by 89.7% Y/Y.
In an interview with Reuters, National Bank of Hungary (MNB) deputy governor Kurali indicated that the central bank received better-than expected inflation data of late together with an improvement in risk premia. “As a result, potentially the required rate to achieve and maintain price stability might be lower.”. At the same time, Kurali said that the prospect of major central banks (ECB, Fed, Bank of Japan) raising interest rates remains a reason for caution. As the MNB evaluates the potential trajectory of policy rates, it will have to uphold positive real rates to achieve and maintain price stability. Asked whether any easing would be a one-off or the start of a cycle, the deputy governor indicated that it’s difficult to talk about cycles in this environment. Kurali also said that the MNB will launch a regular review of its 3% medium term inflation target in the summer as the government aims to meet euro adoption criteria by 2030. The review is said to examine the impact of a lower target closer to euro zone levels, and the strategy and timing for any change, which could come in one or two steps. The MNB expects this analysis to be fully prepared and discussed by autumn.
