• 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.
• 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.