• Central banks/authorities in Central-Europe walk the talk. The Polish central bank yesterday and two days ago intervened in FX markets to support the ailing zloty. There were no amounts specified. Additionally, the Polish government showed readiness to convert euro proceeds (coming from EU funds) into zloty’s directly via the market instead of via the NBP. This would increase selling pressure in EUR/PLN. Deputy Governor Virag a few days ago said Hungary’s central bank (MNB) was ready to intervene to ensure stability. He referred to rate hikes as being the most important tool to defend the forint. The MNB today made a move by jacking up the weekly deposit rate from 4.60% to 5.35%, close to the current ceiling of the interest rate corridor (5.4%). Unfortunately though, the impact of both the NBP and the MNB on their respective currencies was modest. The forint stabilizes vs the euro at record lows of EUR/HUF 378. EUR/PLN inches higher to surpass 4.76, a new 13-year low for the zloty. The Czech koruna extends a recent losing streak to EUR/CZK 25.66. The central bank (CNB) there also hinted at potential FX interventions. But while it has massive legacy FX reserves, the CNB kept power dry for now.
• Other markets are muddling through. European stocks trade with minor losses, WS opens in light green. Brent oil briefly hit $120/b (> +4%) before paring all (and more) gains on rumours/reports that a nuclear deal with Iran would soon be signed. This could pave the way for now-boycotted Iranian oil to flow to the market again. The black gold currently loses 0.3% to $112. Soft commodities including wheat (+6.4%) continue to soar. Core bonds are under pressure with Europe/German Bunds underperforming. The German curve flattens with yield changes ranging from +1.8 bps (30y) to 6.2 bps (2y). The 10y (+3.9 bps) extends its return above 0%. European swap yields advance 3bps + across the curve. The 2y swap yield bounced off -0.10% yesterday – the level seen just before ECB president’s Lagarde verbal pivot. It is extending gains to 0.05% today. The 10y swap yield (0.74%) nears first resistance (0.77%). US bond yields hover sideways. FX markets trade quietly. EUR/USD remains below 1.11 with the euro unable to profit from ECB meeting minutes. There were a lot of inflation concerns which has become more widespread. The main risk was no longer of tightening policy too early but too late. Some already wanted to adjust guidance on phasing out APP in February. With war in the meantime having erupted, the minutes of course lost relevance. Sterling ekes out another minor gain after yesterday’s rally that caused a technical break in EUR/GBP below the previous YtD lows. The pair is currently changing hands at 0.828, extensively testing December 2019 support at 0.8277.
• Inflation in Turkey continued to move higher in February from already extreme levels. Headline inflation printed at 4.81% M/M to be 54.44% higher compared to the same month last year (was 48.69% in January). Core inflation also accelerated from 39.45% to 44.05%. In a Y/Y perspective costs of transportation rose 75.75%, followed by furnishes and household equipment (64.83%) and food and beverages (64.47%). The ‘slowest’ annual increase was recorded for communication services (11.89%). February PPI inflation jumped 7.22% M/M to be up an astonishing 105.01% Y/Y suggesting further upward inflationary risks, even as the government took measures to alleviate price rises on some basic goods. The Turkish lira lost modest ground today even as the real policy rate is becoming ever more negative (EUR/TRY 15.75 area).
• We’re speaking of a different degree of inflation compared to most other countries, but even Swiss inflation in February also surprised on the upside. Headline inflation rose 0.7% M/M and 2.2% Y/Y, well above expectations and the highest reading since 2008. Price increase for fuel, housing rental and heating were mentioned as driving the rise. Core inflation excluding fresh and seasonal products, energy and fuel also rose a faster than expected 1.3% Y/Y (from 0.8% in January). The Swiss franc today strengthened further below the 1.02 handle (1.0190).