Markets
For the third session in a row Markets were “forced” into technical trading Since there are few data with market-moving potential and since the markets have basically concluded that the assessment on the timing of (potential) interest rate hikes in countries like the US or EMU will likely be postponed until at least September (or even later). However, given the short-run “market equilibrium,” Today US and EMU bond yields added a few basis points. Oil prices, after a prolonged decline from levels near $120 per barrel at the end of April, appear to have found a short-term bottom. This is a nice setback that reflects most of the post-war rally. However, quotes in the oil curve are still higher compared to the beginning of the year. In this regard, supply uncertainty (such as potential duties for passage through the Strait of Hormuz, military incidents and/or other potential supply issues) has not yet been resolved and may still affect prices. Whatever the reason, Brent crude is trading near $72.5 a barrel, down from lows near $70 touched last week. In this context, US and European/German yields add between 3 and 4 basis points across the curve. Financial sustainability is also likely to remain an issue. In this regard, Japanese yields continued to rise this morning between 1.9 basis points and 3.2 basis points over a period of two to 20 years, With the 10-year and 20-year hitting new multi-decade highs at 2.86% and 3.84% respectively. The 30-year index fared slightly better in today’s auction results, but most of the intraday gains had to be given back later in the session. On the topic of fiscal sustainability, we are also monitoring the US Treasury’s monthly refinancing process starting with a $58 billion three-year bond issuance this evening. The selling of 10-year bonds (tomorrow) and 30-year notes (Thursday) in this regard may be more important as an indicator. Stock markets I kind of got into a more regular pattern. This appears to be a combination of some sort of sector rotation, but also a hesitant reaction to results in tech/AI related sectors (like Samsung this morning), suggesting some nervousness in the market about valuations going into Q2 earnings season. The EuroStoxx 50 index fell by 0.5%. After yesterday’s outperformance of the Nasdaq, some rotation (or is it hesitation?) is at work again, with the Dow Jones up 0.4%, the S&P index little changed at the open and the Nasdaq correcting 0.6%.
Currently, there is very little to report on key interest rates for the US dollar. A delay in policy moves at least until after the summer “neutralizes” interest rates and interest rate differentials as a factor in forex trading. At this point, it is also not clear which currencies might be affected the most if financial sustainability gains importance as a factor in the global market. EUR/USD is not going anywhere. The pair is settling in the lower half of the big figure 1.14 (1.1435). The DXY indicator is hovering in a similar pattern sideways near 101 (100.95). USD/JPY at 161.9 still shows the yen’s fragility, but at least for now the impression is that markets and Japanese authorities are also respecting some sort of implicit short-term ceasefire. The pound is still putting on a good show against the euro, with EUR/GBP (0.8545) near its lowest levels in more than a year.
News and opinions
Hungary’s inflation rate in June fell close to expectations. Prices are stagnant on a monthly basis Annual printing fell below the 2% lower end of the target range of 3%±1 ppt (1.7% from 1.8%). The Hungarian Statistics Office showed that food prices fell by 0.2% on a monthly (and annual) basis. Utilities added 0.3% to their prices (4% y/y), while electricity, gas and other fuel prices rose 0.4% (-2.3% y/y). Core CPI rose 0.14% m/m with the yearly reading at 1.97%, more or less in line with May. Constant price inflation, a measure prepared by the central bank, fell from 3.8% year-on-year to 3.6% – the slowest since May 2020. The central bank’s quick analysis shows that the CPI for June came in below forecasts made last month. At its June meeting, the Hungarian Central Bank cut interest rates by 25 basis points and indicated more rates to come during the summer months. And Budapest gets a boost from today’s data to do just that. Dovish messaging has led to a slight decline in the value of the Hungarian forint, meaning currency markets are not protesting either. Today the EUR/Hungarian Forint pair barely moved around 354. Financial markets assume that MNB easing will end at around 5% from the base rate of 6% currently.
Prices fell by 0.3% on a monthly basis in the Czech Republic last month. The larger-than-expected decline led to a decline in inflation on an annual basis from 2.1% to 1.5%, compared to the expected 1.8%. Core CPI (excluding energy, food, alcohol and tobacco) rose 0.3% month-on-month and remained at 3.1% in May. With services inflation rising to 4.5% (from 4.7%), this suggests that underlying price momentum is stronger than it appears on the surface. Energy prices actually fell a sharp 2.8% month-on-month amid the recent decline in oil prices, pushing the annual figure to -1% in a sharp reversal from +1.8% in May. It is these stubborn risks to domestic prices that prompted the Czech National Bank to raise interest rates to 3.75% last month. Directions for future moves were rare but mostly Policymakers described the June move as a precautionary step rather than the start of a cycle. Czech financial markets are considering the idea of another hike at one of the next meetings (possibly in September), even after today’s CPI failure. The Czech Koruna loses some strength, reaching EUR 24.23/CZK.
