Wednesday, March 9, 2022

Daily Market Overview

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• What a difference a day makes. Yesterday, the US announcing a ban on the import of fossil energy from Russia still caused some caution on US equity markets. Today, investors apparently concluded that this action might be the harbinger of at least a pause in the retaliatory dynamics between Russia and the West. The astonishing commodity rally finally slowed. At $122 p/b or  $1230 p/bushel the likes of brent oil, wheat and other commodities for sure aren’t cheap and still profoundly erode consumers’ disposable income. Even so, the pause was enough for dip-buyers to return to equity markets. Whether this move will endure given the potential negative impact of the ‘commodity tax’ on growth remains an open question. Whatever, European indices are recovering up to 5.0%+. US indices, which suffered less of late, open with gains of up to 2.2% (Nasdaq). Earlier this week, core yields rebounded as rising in inflation expectations outpaced to decline in real yields due to broad risk-aversion. Today, yields are extending their march north but current move is driven by a rebound in real yields. Inflation expectations are stabilizing (US) or easing modestly (EMU). German yields are gaining across the curve (2-y +10 bps; 5-y + 8.5 bps; 30-y +9.5 bps). The bund-swap spread narrows. Yesterday, intra-EMU spreads narrowed after reports on a new EU funding plan. This trend continues today despite higher core yields. The 10-y spread of Greece versus Germany eases another 6 bps. The Italian spread narrows of 4 bps. European investors now are looking forward to tomorrow’s ECB meeting for clues on the ECB’s anti-inflation tactics. US yields are rising between 3.75 bps (30-y) and 7.5 bps (5-y) ahead of tomorrow’s US February CPI release. Later today, the US Treasury will sell $34 bln of 10-y Notes. Yesterday’s 3-year action only drew mediocre investor interest despite recent rise in yield.

• On FX, currencies that suffered most from the Ukraine crisis also enjoyed further relief today. EUR/USD regained the 1.10 barrier (1.1035) after it filled bids just north of north of 1.08 only two days ago. The single currency also rebounds sharply against the safe havens with EUR/CHF trading at 1.024 and EUR/JPY jumping to the 127.75 area. The TW DXY index is sliding from 99+ levels to currently 98.15. CE currencies are also extending yesterday’s comeback, profiting  for a combination of persistent CB support (interest rates and potential FX interventions), a better regional/global risk sentiment and the potential perspective of coordinated EU support. The forint, the Czech koruna and the zloty are strengthening respectively to EUR/HUF 378, EUR/CZK 25.20 and EUR/PLN 4.80. Sterling is gaining against the dollar (1.3175), but eases further against the euro (EUR/GBP 0.8385) even as markets again embrace the idea of more aggressive BoE tightening to address inflationary risks.

News Headlines

• Hungarian inflation in February quickened 1.1% m/m, faster than the 0.8% expected but slower than the 1.4% in January. Food prices over the past month rose 2.1%, the Hungarian Central Statistical Office noted, though some subcomponents were cheaper M/M due to the price caps imposed by the government. Consumer durables were 0.7% more expensive, services 0.7%. General prices rose 8.3%Y/Y (8.1% expected) – the fastest since August 2007. Food surged 11.3% y/y; motor fuel prices 18.7%. Services charges were up by 5.5% and consumer durables 8.3%. The Hungarian forint strengthened today even as inflation in the future is bound to soar even further amid spiraling commodity prices and earlier forint depreciation. The move was mainly driven by strong risk-on. EUR/HUF retreated from 387.8 to 378.4. The central bank will decide tomorrow on its one-week deposit rate, a tool aimed at supporting the forint in times of stress. Consensus expects an increase to 6% from 5.35%.

• Italy’s statistics bureau said the country’s economic growth is already affected by “price shock on energy compared to the base scenario”. The toll is estimated at 0.7% and follows a probable cut in consumption by families. Italy started the year on soft footing industrially as well. Production fell a more than expected 3.4% in January, hurt by the last wave of pandemic restrictions.

Graphs & Table

EUR/USD regains 1.10 barrier on broad risk rebound.

European equities are fighting back as fear for further economic retaliation measures eases.

EUR/PLN: zloty profits from improvement in regional sentiment. NBP reconfirms anti-inflation commitment.

EMU 10-y swap revisits cycle top ahead of ECB meeting.

Note: All times and dates are CET. More reports are available at which you may sign up to.

This document has been prepared by the KBC Economics Markets desk and has not been produced by the Research department. The desk consists of Mathias Van der Jeugt, Peter Wuyts and Mathias Janssens, analists at KBC Bank N.V., which is regulated by the Financial Services and Markets Authority (FSMA).
These market recommendations are the result of qualitative analysis, incorporating room for past experiences and personal assessments. The views are based on current market circumstances and can change any moment. The most prominent input comes from publicly available data, financial news, economic and monetary policies and commonly used technical analysis.
The KBC Economics – Markets desk has used reasonable efforts to obtain this information from sources which it believes to be reliable but the contents of this document have been prepared without any substantive analysis being undertaken into these sources.
It has not been assessed as to whether or not these insights would be suitable for any particular investor.
Opinions expressed are our current opinions as of the date appearing on this material only and can be opposite to previous recommendations due to changed market conditions.
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Given the nature of this advice (linked to currencies and interest rates) , the advice is overall not specific in nature.   As such there is no reference to any corporate finance contract and as such there is no 12 month overview based on the different advices.
This document is only valid during a very  limited period of time, due to rapidly changing market conditions.

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