Friday, April 1, 2022

Daily Market Overview

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• Investors were relatively cautious to place strong directional bets at the start of the new quarter. There was no follow-through price action on yesterday’ risk-off move. Or was it simply an end of quarter repositioning? Whatever, Asian equity investors took a cautious start to the new quarter. There were again plenty of diffuse stories on the developments in Ukraine, the next round of negotiations between Russia and Ukraine in Turkey and the payment of gas supply in rouble as asked for by Russian president Putin. Even so, equities gradually regained some traction with core bonds again slipping away. Main European indices gain 0.25% to 0.50%. The market focus turned to the EMU inflation figures and the US payrolls. EMU CPI surged by a whopping 2.5% M/M. The y/y reading rose from 5.9% to 7.5%, easily setting a new record high and outpacing 6.7% consensus. Underlying core inflation increased from 2.7% Y/Y to 3% Y/Y (vs 3.1% consensus). Details showed energy prices obviously responsible for the inflation acceleration, rising by 44.7% Y/Y. Food, non-energy industrial goods and services recorded increases of respectively 5% Y/Y, 3.4% Y/Y and 2.7% Y/Y. Last month’s upgraded ECB inflation forecasts already pale after today, even as the ECB lifted this year’s average number to 5.3% Y/Y. The strength of the price pressure leaves no doubt that the ECB will react with policy normalization even as the economic outlook looks gloomy. German yields add 2.5 bps to 3.5 bps today in a slight steepening move. The euro failed to regain any significant ground against the dollar (EUR/USD 1.1055) or sterling (EUR/GBP 0.8430) following yesterday’s beating. US payrolls printed close to consensus. They confirm the image of a tight US labour market which leaves space for the Fed to up the ante in its inflation battle. The US economy added 431k jobs in March (vs 490k consensus). January and February figures were upwardly revised by a combined 95k. The unemployment rate fell from 3.8% to 3.6% which is near the pre-Covid (and multidecade) low of 3.5%. The participation rate rose from 62.3% to 62.4% and remains well below the early 2020 level of 63.4%. Hourly earning rose as expected by 0.4% M/M and by 5.6% Y/Y. The data didn’t impact the dollar, but did trigger additional sales of US Treasuries, which significantly underperform German Bunds. The US yield curve bear flattened with yields adding 10.7 bps (2-yr) to 5.8 bps (30-yr). Brent crude held near this week’s sell-off low of $104/b after the US confirmed the release of around 1/3rd of its Strategic Petroleum Reserves (180 million barrels) in coming months. Focus will remain on the Russian war in Ukraine next week. The eco calendar is rather thin but the Minutes of the ECB and Fed policy meetings could provide interesting details on deliberation at the key March policy meetings and perhaps offer some insight on what to expect on April 14 (ECB) and May 4 (Fed).
News Headlines

• Polish CPI quickened into the double digits to 10.9% y/y in March. That’s up from 8.5% the month before and more than the 9.8% expected. The flash reading only contains a limited amount of details but it is clear energy has had a big part in the price surge, rising 4.4% m/m and 23.9% y/y. Fuel prices rose a stunning 28% m/m to be up by a third – 33.5% to be precise – on a yearly basis. Food prices rose 2.2% m/m and 9.2% y/y. Polish money market rates move up by about 17 bps, outpacing Central-European peers. The zloty trades stoic around the strongest level since the Russian invasion on February 24 at EUR/PLN 4.64.
• The OECD’s chief economist said governments are not enough aware of the economic fallout from the war on the medium term. “The longer the war will last, the more uncertainty we have and the more worried we’re getting because uncertainty deters consumer purchases and business investment.”, Boone said. She added the conflict will also have long-lasting effects on energy, food and digital security, payments systems and trade. The OECD already shaved 1 ppt of global growth in its March interim update earlier this month due to the war. Europe was revised down by 1.4 ppts. Inflation was seen 2.5 ppts higher worldwide and 2 percentage points in Europe.

Graphs & Table

US 2-yr yield receives additional momentum from strong US payrolls

AUD/USD: commodity rally brings AUD to first resistance. Will RBA offer glimpse of interest rate support at next week’s meeting?

Brent crude again heading towards $100/b in follow-up action on US SPR-announcement

EMU headline (blue) and core (orange) inflation since creation of euro zone

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.
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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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