Thursday, March 24, 2022

Daily Market Overview

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• EMU PMI’s provided the first real (sentiment) update on consequences from the Russian invasion in Ukraine. The official setback was smaller than feared in March. The composite number fell from 55.5 to 54.5, with the decline more or less similar in the export-oriented manufacturing sector (57 from 58.2) and the domestic services industry (54.8 from 55.5). Details nevertheless showed that a boost to demand from the further reopening of the economy from Covid-19 restrictions offset the economic impact of the Russian invasion. It’s worth mentioning that companies grew increasingly concerned about the outlook. Chief Business Economist Williamson at S&P Global, responsible for the PMI release, warned for the risk of the eurozone falling into decline in the second quarter given that the short term Covid-rebound will fade. Other dark details from the upbeat headline print include aggravated price pressures because of the war, leading to record inflation rates for firms’ costs and selling prices, which will inevitably feed though to higher consumer prices in the months ahead. Today’s response on FI markets confirms our view that investors turned a page. Central bank’s focus is on inflation (expectations) with markets aware that this stance will come at a price for the economy. Yesterday’s rebound of core bonds proved again short-lived. The US yield curve bear steepens with yields adding 4.1 bps (2-yr) to 8.2 bps (30-yr). German yields add up to 7.5 bps with the belly of the curve underperforming the wings. Stock markets and oil prices trade volatile near opening levels. EUR/USD is still toying with the 1.10 big figure. UK and US PMI contrasted with the EMU release. In the UK, a rebound in services more than offset a setback in manufacturing. Details were nevertheless in line with the EMU gauges. In the US, both subindices contributed to a surge in the composite PMI to the highest level in 8 months. The feared impact of the (European) war is obviously smaller, but the outlook nevertheless weakened as well.
News Headlines

•  The ECB today announced a timeline setting out the steps to phase out the temporary pandemic easing measures with respect to collateral that were introduced in April 2020. The phasing out will occur in three steps between July 2022 and March 2024. Amongst others, measures that are scaled back are a temporary reduction in collateral haircuts. The ECB also no longer will maintain the eligibility of marketable assets that initially fulfilled minimum credit quality requirements but whose credit ratings subsequently deteriorated below the minimum credit quality. However, the ECB continues to allow NCBs to accept as eligible collateral Greek government bonds (GGBs) that do not satisfy the Eurosystem’s minimum credit quality requirements but fulfil all other applicable eligibility criteria, for at least as long as reinvestments in GGBs under PEPP continue.
• The Norges Bank raised its policy rate from 0.50% to 0.75%. The Norwegian economy continues to recover while price and wage inflation has been higher than expected. The war in Ukraine contains risks of both lower growth and higher inflation. Due to capacity constraints and global price pressures the NB is concerned about higher wages and prices. It raised the path for its policy rate forecast and now sees policy rate at 2.5% end last year versus 1.75% end 2024 in the December forecast. The NB also signaled that a next rate hike in June is likely. The Norwegian krone touched a new correction low near 9.45, but this move was also supported by a persistent high oil price.
• The Swiss National Bank left its policy rate unchanged at -0.75% and no change is imminent. Inflation is expected to rise temporary to 2.2% Y/Y in Q1 and Q2, but will return to an average of 0.90% in 2023/24. The SNB sees the franc has highly valued and is willing to intervene in the FX market as necessary. However, it takes into account the overall currency situation and the inflation rate differential with other countries. A favourable relative cost development versus trading partners mitigates the need of an aggressive intervention policy in case the rise of the franc stays modest. The Swiss franc today gained modestly further to trade near EUR/CHF 1.0225.

Graphs & Table

EUR/NOK tests 62% retracement on long term rise. Rising oil prices and Norges Bank normalization process support NOK

EUR/CHF: SNB ready to intervene, but doesn’t really mind a stronger currency

German 10y yield resuming uptrend after 1-day correction. Unworried by gloomy eco outlook presented by PMI’s

EUR/USD spends more time near 1.10 big figure

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.
The authors of this recommendation do not warrant the accuracy, completeness or value (commercial or otherwise) of any recommendation. Neither are the authors liable to those who receive these recommendations for the content of it or for any loss or damage arising (whether in tort (including negligence), breach of contract, breach of statutory duty or otherwise) from any actions or omissions of the authors in reliance on any recommendation, or for any claim whatsoever in respect of the content of, or information contained in, any recommendation. Any opinions expressed herein reflect the judgement at the time the investment recommendation was prepared and are subject to change without notice.
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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