Sunset Market Commentary – Forex Action
The absence of American traders in compliance with martin luther king day eased today’s EMU trade action. Especially since the main course was served during Asian trading hours with monthly Chinese activity data and quarterly GDP figures. The data pointed in the direction of a new momentum of declining growth. The PBOC anticipated the figures by unexpectedly cutting key rates for the first time since April 2020 (7d reverse repo and 1y lending facility) by 10 bps to 2.1% and 2.85% respectively. It led to an outperformance of the main Chinese equity indices (+1-1.5%). The main European benchmark indices have benefited from the recovery in risk and are currently gaining 0.5% to 0.7%. EUR/USD is fluctuating in the low zone of 1.14. German Bunds continue to trade near Friday’s selling lows. Daily variations are between +0.5 bp and +1.1 bp across the entire curve. The German 10-year rate thus remains close to the recovery high of -0.02%. The technical picture for the EU 10-year swap rate looks even better. It broke through the 2021 recovery high (0.33%) in early January only to come up against lower resistance at 0.40% (50% retracement on 2018-2019). A downside correction failed to drop below resistance-turned-support at 0.33% with the key swap gauge back at 0.40%. An upside break opens the way for a 62% retracement on that 2018-2019 decline at 0.59%. This week’s key event from a European perspective might for once be the normally boring minutes of the ECB meeting, released Thursday. Let us remember the reaction of the American markets after the publication of the December minutes. The ECB then decided to put the PEPP to bed after March 2022 and temporarily increase the APP in Q2 (€40bn/month) and Q3 (€30bn/month). We assume that Lagarde used his best negotiating skills to craft this deal and markets will be interested in more hawkish floating alternatives in line with the rapidly changing market.
The Kingdom of Belgium intends to launch a new 10-year benchmark (OLO 94 June 2032). The Belgian debt agency for this year’s projects a gross financing requirement of €48.28 billion. This covers a deficit of €18.34bn (net funding), €27.59bn of maturing debt and €1.84bn of planned redemptions. Gross borrowing is up 10% compared to last year. Significantly higher debt repayments offset a 25% lower cash shortfall. In 2023, these redemptions should drop to €21.6 billion. Most of the financing will be raised via OLOs for an amount of €41.20 billion (up to 3 syndications planned). EMTN & Schuldscheine programs (€3bn) and an increase in short-term debt fill the remaining void. Belgium will no longer finance via EU (SURE) loans.
Norwegian exports in 2021 reached a record value of NOK 1377.8 billion, increasing the amount of total exports by approximately 77% compared to 2020. This strong export performance was record trade surplus of NOK 531 billion for the year. The rise was mainly due to rising energy prices. The value of natural gas exports more than quadrupled to NOK 478.8 billion. Revenues from oil exports reached their highest level since 2008 (NOK 349.6 billion). However, Norway’s good export performance has been also visible in continental exports which also reached an all-time high (+22% compared to 2020). This was due to strong exports of petroleum-related products, metals and energy, but fish exports also hit a record high. The Norwegian krone remains well quoted, the EUR/NOK falling back below the 10 mark. The Norwegian central bank raised its key rate from 0.25% to 0.50% in December. It meets again on Thursday but a the next hike is not expected until the political meeting on March 24 when a new monetary policy report will be available.
December Polish inflation at the start of the month was 0.9% m/m and 8.6% y/y. Today, the National Bank of Poland has published its monthly analysis of the drivers of (core) inflation. Core inflation net of food and energy prices increased further by 0.4% M/M and 5.3% Y/Y (vs. 4.7% in November). The core number excluding the most volatile items accelerated further 0.7% M/M and 6.7% Y/Y. Last week, the Polish government announced a series of measures, including reductions in VAT on certain products for six months from February 1, to limit price increases for Polish citizens. The zloty extended its gains today. EUR/PLN is trading near 4.52, the highest level for the zloty since September last year.