• The developments in Ukraine still were the main driver for global trading. However, with EMU inflation data, the OPEC+ decision on production hikes, the US ADP labour market report and Fed Powell’s testimony before the House of representatives there was a lot to pay attention to. For now, Russia’s attempt to occupy several Ukrainian cities continues and there is little perspective on how and when this might end. Persistent uncertainty on the development of the conflict and fears for other supply bottlenecks propelled Brent oil north of the $110 p/b handle (currently 112). Even so, European equities gradually were looking for some kind of equilibrium after the sell-off over the previous days. After some hesitation the Eurostoxx50 gains 1%+. US equities also open with gains of about 1.0%. In line with recent data evidence from individual member countries, the preliminary EMU February CPI also surpassed market expectations. Headline CPI accelerated 0.9% M/M and 5.8% Y/Y (a record high) from 0.3% M/M and 5.1% in January. Core CPI also jumped from 2.3% to 2.7%. The immediate reaction of EMU interest rate markets to the data was modest. Yields already moved away from yesterday’s lows before the release and this process continued afterwards. German yields are rising between 10.5/9.0 bps (5-y & 2-y) and 2.5 bps (30 -year). The German 10-y yield is gain nearing the 0.0% level. Money markets currently again embrace the idea of a 25 bps ECB rate hike by the end of the year. The rise in EMU swaps is more modest than in bund yields, admittedly after a big widening of the spread of late. The safe haven bid for US Treasuries also eased with the US curve bear flattening. The 10-y yield gains 8 bps. The 30-y rises 4.5 bps. Regarding the data, we have to mention a very strong ADP labour report with February private job gains of 475K and an impressive January upward revision from minus 301k to + 509k! This at least confirms that the US labour market up until now remained in good shape. In published notes of Powell’s appearance before the House, the Fed Chair as expected confirmed that it is appropriate to raise rates at the March meeting and that the Fed intends to reduce the balance sheet in a predictable way, mainly via runoff.
• On FX markets, a milder risk-off sentiment and markets again raising chances for higher ECB rates at the end of the year doesn’t help the euro much. The pair tested the 1.106 area and struggles to regain the 1.11 level. The dollar retains the benefit of the doubt with the DXY index trading in the 97.60 area. The yen weakens further (USD/JPY 115.45). The rally of the Swiss franc (EUR/CHF 1.0215) slows after the pair touched to lowest level since early 2015. CE currencies remain under pressure with the Czech koruna (EUR/CZK 25.78) and the forint (EUR/HUF 382.75, new record low for the forint) underperforming. The decline of the zloty (EUR/PLN 4.76) slows as the government said it will sell its foreign currency via the market. Even so, the picture remains fragile.
• OPEC+ didn’t really discuss the matter of thwarted Russian oil production, Mexico’s Energy Minister said after the monthly meeting concluded. Instead, they stuck to normalize output further with 400 000 barrels a day for next month. It’s a drop on a hot plate amid soaring demand, especially against the background of many OPEC countries grappling with capacity constraints. The group in January pumped almost one million barrels a day less than its target, the OPEC Joint Technical Committee showed yesterday. In addition, there’s growing reluctance of traders and shipowners to handle Russian oil. Russia’s Urals crude oil yesterday carried a record discount during the sale but found no bidders. Oil prices extend their recent surge with another 7% to $112.4 (Brent crude).
• European Commissioner for Economy Gentiloni said the need to deactivate the General Escape Clause, currently planned for in 2023, would have to be reassessed. He essentially leaves the door open to extend the current suspension of the Stability and Growth pact which limits countries racking up deficits beyond 3% of GDP. The pivot comes the Russian invasion of Ukraine triggers more spending (eg. Germany in the defense sector) and clouds the economic outlook.