(European) markets took a hesitant start to the new trading week. Today’s eco calendar was thin and data with market moving potential will also be scarce for the remainder of the week. So, the market focus again turned to the war in Ukraine. Images/reports on atrocities during the weekend committed in cities near Kyiv, reinforced calls across Europe to take more decisive economic sanctions against Russia. EMU equities opened with modest losses, but a cautious bid gradually brought European indices back to unchanged levels. US indices also open little changed. Brent Oil gained modestly to $107/b, but the damage could have been bigger. European natural gas hardly reacted. Maybe it helped to prevent a more pronounced risk-off. US and European interest rate markets are reacting in a slightly different way after recent anticipation on central bank policy normalization. The US curve shows a (corrective) steepening. The 2-y eases 1.5 bps but at 2.44% is holding within reach of last week’s cycle peak. The 30-y gains 2.25 bps, after trading higher intraday. EMU bond investors fear a further escalation in mutual economic sanctions between European and Russia, annex potential negative fall-out on growth, and turn a bit more cautious on the recent sharp rise in EMU yields. This feeling was perfectly illustrated by EU Sentix investor confidence tumbling from -7.0 to -18.0. The expectations component (-29.8) even dropped to the lowest level since end 2011. German yields are declining between 3 bps (2-y) and 6 bps (10-y). EMU swap yields show a similar pattern, but the decline is less outspoken. Interestingly, after a period of remarkable resilience despite the (economic) uncertainty due to the conflict in Ukraine, intra EMU spreads are widening for the second session in a row. 10-y spreads of Spain, Portugal, but also France are widening up to 2-3 bps. Greece is the exception (-2 bps).
Persistent geopolitical uncertainty at the borders of the EU, a pause in the ECB normalization bets and wider intra-EMU spreads are eroding last week’s positive euro momentum. The EUR/USD picture hasn’t deteriorated in a profound way yet, but is showing cracks. A sustained break below the 1.10/0975 area (psychological and short-term uptrend line) would turn the focus again to the downside with 1.0951 (62 % retracement March rebound) a next reference. Other cross rates confirm that today’s EUR/USD decline is mainly euro weakness. USD/JPY gains only modestly (122.7). EUR/JPY (133.9), EUR/CHF (1.0180) and EUR/GBP falling back to 0.8385 (from 0.8435/30 this morning) all confirm a bleak euro performance. The forint (EUR/HUF 369.50) underperforms regional peers (CZK, zloty) after PM Orban maintained a comfortable two-thirds majority in yesterday’s parliamentary election, suggesting more political confrontations with the EU.
Turkish inflation last month accelerated to a mindboggling 61.14% y/y, up from 54.44% in February. Energy inflation climbed to 102.9% despite tax cuts. Food prices soared 70.3%. Core inflation jumped from 44.05% to 48.39%, revealing price pressures stretch way beyond energy and food. Such high numbers imply Turkish real policy rates at -47.1% are the world’s lowest. This compares to -8% or -7.4% for Europe or the US respectively. Producer price inflation remained in the triple digits, quickening from 105.01% to 114.97%. The Turkish lira trades stoic today. If anything, the currency even gains against the likes of the euro (EUR/TRY 16.16). Year-to-date, the lira is down more than 6% vs the common currency. Moves were remarkably orderly though, even amidst the Russian invasion.
Saudi Arabia, the world’s biggest oil exporter, raised oil prices for all clients in every region. The move follows soaring international prices in the wake of the Russian invasion (eg. Brent oil settled well above $100/b). It increased prices for its Arab Light crude for next month’s shipments to $9.35 p/b above the benchmark for Asia in particular. That’s up $4.4 from April, which was already a record. Global energy prices remain on the rise today as well. Europe is working on a new round of sanctions following alleged Russian atrocities near Kyiv. Pressure is building to target oil and coal imports. Brent adds 2.6% to $107 p/b.