Sample Category Title

Markets

Same dynamics were at play for a third session straight with US assets starting to discount the possibility of a stagflation rather than a goldilocks scenario for the US economy. Key US stock markets lost 0.50% for the S&P 500 and 1.35% for the Nasdaq. EUR/USD tested the YtD top at 1.0533 again, but failed to break beyond. US Treasuries extended their rally with US yields losing around 10 bps across the curve, falling below YtD support levels. The US Treasury’s $70bn 5-yr Note auction copied the success of Monday’s $69bn sale, stopping through the 1:0 pm WI and producing strong bidding metrics. A significant deterioration of US consumer confidence (February) highlighted current worries. The Conference Board gauge fell from 105.3 to 98.3 with especially the forward looking expectations index suffering. In particular, pessimism intensified about future employment prospects (DOGE?!), while a growing number of consumers see a recession is likely over the next 12 months. German Bunds outperformed US Treasuries with yields slipping a more modest 2 bps across the curve. ECB data showed negotiated wage growth in Europe slowing from a record 5.4% Y/Y pace in Q3 to 4.1% in Q4. This level remains very uncomfortable and probably strengthens hands of policy hawks to argue in favour of a rate cut pause after the ECB lowers its policy rate from 2.75% to 2.5% in March.

US Treasuries lose some ground this morning after House Republicans passed a budget blueprint (see News & Views). It’s an important step towards extending tax cuts and avoiding bumping into the debt ceiling early next month. US equity futures and the dollar equally trade somewhat stronger. European news centers around the Ukrainian agreement to a mineral-rights deal with the US which Ukrainian president Zelensky would sign in Washington on Friday. It would be a first face-to-face meeting between the two after the US initially started brokering a peace deal with Russia. The deal doesn’t include US security guarantees (yet). It only suggests that Ukraine would pay some proceeds from future mineral resource development into a fund that would invest in projects in Ukraine. The size of the US stake in the fund and joint ownership deals need to be specified later on. Today’s eco calendar only contains second tier numbers, leaving more room for general risk sentiment to set the overall tone. We’d continue to err on the side of caution despite this morning’s signs of improvement. Nvidia earnings (after market close) are a wildcard.

News & Views

The US House of Representatives passed a budget resolution in a tight 217-215 vote that could pave the way for huge spending and tax cuts. The resolution offers the broad framework for Trump’s “big beautiful bill” and proposes around $2tn of reduced expenses but a much bigger $4.5tn of lower taxes. The resolution is now headed to the Senate. While the GOP there has a larger majority, Senate republicans favor even larger tax cuts, making amendments to the resolution highly likely. That would mean it the House needs to vote on the altered version again. Once the House and Senate do agree on the same budget, the subsequent bill can be pushed through faster and more easy than usual through the so-called reconciliation process (which avoids the 60-vote threshold in the Senate required for most bills). The US non-partisan Committee for a Responsible Federal Budget estimated that the current House-approved bill would add at least $2.8tn (or $3.4tn including interest costs) to deficits through 2034. Deficits would then average 6.8% of GDP over the decade instead of 5.8% under current law. That pushes up the debt ratio to 125% (compared to 117% if no bill passes).

The Hungarian central bank (MNB) delivered kept the policy rate at 6.5% yesterday. Both headline and core CPI of 5.5% and 5.8% are well above the central bank’s target. “Incoming data provide evidence that the risk of a higher inflation path this year has increased further.” The MNB now thinks inflation will return to the 3% +/- 1 ppt tolerance band later than projected in December. The technical recession in Hungary came to an end in 2024Q4 (+0.5% Q/Q) and growth should strengthen further on the back of consumption. Budapest noted that investor sentiment has improved (i.e. the forint has strengthened), a.o. due to the geopolitical developments. However, “the uncertain international environment and the outlook for inflation warrant the maintenance of tight monetary conditions.” The forint came close to the symbolical EUR/HUF 400 barrier yesterday but stayed shy from testing.

In focus today

Today, the EU Commission is set to publish its "Clean Industrial Deal", which is the Commission's grand strategy on how to revitalise manufacturing and meet climate goals. A leaked draft shows that the Commission intends to introduce "Made in the EU" quotas and carbon product labels. It focuses on reducing energy costs, stimulating demand, fostering investment, ensuring access to critical raw materials, developing global partnerships, and reskilling workers.

In Sweden, producer prices are released at 08:00 CET. While PPI consumer goods domestic supply usually aligns close with CPI, recent trends show rising PPI since October, while the CPI has moved sideways to lower. Somewhat simplified, this indicates a pressure on margins for companies.

Economic and market news

What happened yesterday

On the geopolitical scene, Ukraine agreed to terms with the US on a minerals deal. The deal does not entail any US security guarantees or continued flow of weapons. However, the deal can be seen as part of a bigger puzzle, broadening relations with the US to strengthen Ukraine's prospects after three years of war, according to Ukraine's deputy prime minister and justice minister who led the negotiations. Zelenskyy is planning to travel to Washington on Friday to sign the deal. We are hosting a webinar tomorrow (27 February) from 09:30 to 10:00 CET with our analysis of the current situation. Please use the following link to attend the session: Webinar - The new security disorder in Europe - what are the economic implications?, 27 February.

In the US, the Conference board's sentiment survey mirrored the weakening seen in the University of Michigan's sample earlier. The forward-looking economic expectations declined, while labour market indicators, including the "jobs plentiful"-index, also weakened slightly. Inflation expectations climbed higher, increasing to 6.0% from 5.2%, which marks the highest level since May 2023. The marked surges in inflation expectations over the recent months likely reflect household's perception of tariffs' impact on inflation. We believe that the Fed will be sidelined in March and May, but still think the cutting cycle is far from over.

Turning to the Fed, Richmond Fed President Barkin (hawk and non-voter) stressed the need to remain cautious on inflation amid current uncertainty. Dallas Fed president Logan (hawk and non-voter) was also on the wire emphasizing that the Fed's balance sheet would work best when the maturities of its securities holdings roughly match with US Treasury issuances. Importantly, Logan noted that the Fed is not considering changes to its implementation framework.

In politics, the House of Representatives passed a budget resolution calling for trillions of dollars in tax and spending cuts, extending Trump's 2017 tax cuts, and delivering a massive boost to his 2025 priorities. The vote on the resolution was 217-215. The deal proposes USD 4.5tn in tax cuts, about USD 2tn in spending cuts and allocates hundreds of billions of dollars more to immigration enforcement and the military. The Senate is now set to discuss the budget resolution.

In the euro area, the ECB's negotiated wages indicator declined to 4.1% y/y in Q4 from 5.4% in Q3. We stress that one should cautiously interpret the indicator as it is rather volatile currently amid the mining of one-off inflation compensation payments. That said, looking across alternative wage indicators, the notion of fading wage pressures is underpinned along inflation easing.

In Hungary, the central bank kept the policy rate unchanged at 6.5% as widely anticipated.

In commodities space, Brent crude oil fell sharply, dropping below USD74/bbl, seemingly due to the souring risk appetite that may partly relate to the yesterday's weaker US consumer confidence figures. Demand concerns related to trade woes and weaker US key figures continue to outweigh potential supply concerns from the recent tightening of sanctions on Iran's oil exports. We anticipate Brent prices to average USD 75/bbl in Q1 and rise to USD 85/bbl in Q4.

Equities: Global equities were lower again, with renewed growth fear amid weaker US macro data. Europe managed to defy the sour sentiment and rose 0.3%, whereas S&P sold off -0.5% and Nasdaq -1.4%. This takes S&P 500 -3% off its peak, Nasdaq -5% and Russell -11% off its 2024 record and -6% since the sell-off early February. Meanwhile, Stoxx 600 is only decimals away from a new record high. So, the weakness has really been ringfenced to the US. Same story this morning, with Asian markets bouncing higher driven by Chinese tech (Hang Seng 3%). On a global scale, the defensive rotation has been substantial, with defensive sectors outperforming cyclicals by 5p.p. the last week. This rotation continued Tuesday with tech and consumer discretionary (Tesla -8%) underperforming while yield sensitive homebuilders, off-priced stores, staples and health care fared better. US futures are higher this morning.

FI: Global yields continued drifting lower through yesterday's session due to a range of factors, including the softening of the US Conference Board Consumer confidence survey in February. 10Y US Treasury yields dropped 10bp to 4.29%, the lowest level of the year, with markets adding to expectations of additional Fed easing this year. The direction of yields was also downward pointing in Europe, but to a much lesser extent. Bunds saw significant underperformance following the speculations that the current Bundestag will rush through a softening of the German debt brake rules before convening on 25 March. The Bund ASW spread dropped to an all-time low of -5.2bp in the early part of the session, but most of the move faded in the afternoon. Longer term inflation swap rates fell for the third session in a row along with energy prices.

FX: JPY rallied, and NOK came under pressure yesterday amid souring risk sentiment and a sell-off in oil. USD/JPY fell below 149 and EUR/USD rose back above 1.05.

Daily Pivots: (S1) 188.04; (P) 188.89; (R1) 189.62; More...

Outlook in GBP/JPY is unchanged and intraday bias stays neutral. Risk will be mildly on the downside as long as 193.04 resistance holds. On the downside, firm break of 187.04 will extend the fall from 199.79 towards 180.00 support.

In the bigger picture, price actions from 208.09 are seen as a correction to rally from 123.94 (2020 low). Strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. However, sustained break of 152.11 will bring deeper fall even still as a correction.

Daily Pivots: (S1) 156.09; (P) 156.70; (R1) 157.32; More...

No change in EUR/JPY's outlook and intraday bias stays neutral. On the downside, firm break of 155.72 will be a strong sign that whole fall from 175.41 is resuming. Retest of 154.40 support should be seen next and firm break there should confirm. However, break of 158.19 resistance will turn bias back to the upside and extend the corrective pattern from 154.40 with another rising leg.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). Strong support should be seen from 38.2% retracement of 114.42 to 175.41 at 152.11 to contain downside. However, sustained break of 152.11 will bring deeper fall even still as a correction. Next target will be 100% projection of 175.41 to 154.40 from 166.67 at 145.66.

Daily Pivots: (S1) 0.8288; (P) 0.8296; (R1) 0.8309; More...

No change in EUR/GBP's outlook and intraday bias stays neutral at this point. Another fall is expected as long as 0.8308 minor resistance holds. Below 0.8264 will resume the whole decline from 0.8472 to retest 0.8221 low. Nevertheless, firm break of 0.8308 minor resistance will turn bias back to the upside for stronger rebound to 0.8376 resistance instead.

In the bigger picture, the medium term down trend remains intact with EUR/GBP staying well inside the falling channel. Prior rejection by 55 W EMA (now at 0.8431) also affirm bearishness. Decisive break of 0.8201/8221 support zone will resume whole down trend from 0.9449 (2020 high) and carry larger bearish implications.

Daily Pivots: (S1) 1.6494; (P) 1.6557; (R1) 1.6638; More...

Immediate focus is now on 1.6331 resistance as EUR/AUD's rebound from 1.6355 extends. Break there would suggest that corrective pattern from 1.6800 has already completed, and turn bias to the upside for retesting this high. Firm break there will resume the rally from 1.5963. In case of another fall, strong support should be seen at 61.8% retracement of 1.5963 to 1.6800 at 1.6283 to contain downside.

In the bigger picture, with 1.5996 key support (2024 low) intact, larger up trend from 1.4281 (2022 low) is still in favor to resume through 1.7180 at a later stage. Nevertheless, sustained break of 1.5996 will indicate that such up trend has completed and deeper decline would be seen.

Daily Pivots: (S1) 0.9370; (P) 0.9385; (R1) 0.9404; More....

Intraday bias in EUR/CHF stays neutral as range trading continues inside 0.9359/9516. On the downside, firm break of 0.9359 will revive the case that choppy rise from 0.9204 is merely a correction and has completed. Deeper fall should then be seen back to retest 0.9204 low. However, firm break of 0.9516 and sustained trading above 0.9481 fibonacci level will carry larger bullish implication and extend the rise from 0.9204.

In the bigger picture, sustained trading above 38.2% retracement of 0.9928 to 0.9204 at 0.9481 should confirm that whole fall from 0.9928 has completed at 0.9204. Further rally should then be seen back to 61.8% retracement at 0.9651 and above. However, another rejection by 0.9481 will keep outlook bearish for extending larger down trend through 0.9204 at a later stage.

Daily Pivots: (S1) 1.0474; (P) 1.0497; (R1) 1.0537; More...

Intraday bias in EUR/USD remains neutral and outlook is unchanged. Price actions from 1.0176 are seen as a corrective pattern only. Strong resistance is expected from 38.2% retracement of 1.1213 to 1.0176 at 1.0572 to limit upside. On the downside, break of 1.0400 support will turn bias back to the downside for 1.0176/0210 support zone. However, decisive break of 1.0572 will raise the chance of reversal, and target 61.8% retracement at 1.0817.

In the bigger picture, immediate focus is on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, reversal from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

Daily Pivots: (S1) 148.30; (P) 149.30; (R1) 150.03; More...

USD/JPY's fall from 158.86 resumed after brief consolidations and intraday bias back on the downside. This decline is seen as the third leg of the pattern from 161.94 high. Further fall should be seen to 61.8% retracement of 139.57 to 158.86 at 146.32 next. On the upside, however, break of 150.92 support turned resistance will indicate short term bottoming and bring stronger rebound.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). In case of another fall, strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 1.2623; (P) 1.2650; (R1) 1.2695; More...

GBP/USD is staying in consolidation below 1.2689 temporary top and intraday bias remains neutral. Further rally is in favor as long as 1.2522 resistance turned support holds. Above 1.2689 will resume the rise from 1.2099 to 1.2810 resistance next. However, firm break below 1.2522 will argue that the rebound might have completed, and bring deeper fall to 1.2331 support.

In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433 (2024 high), and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move. However, firm break of 1.2810 will dampen this bearish view and bring retest of 1.3433 high instead.