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• Markets were caught off-guard this morning by a steep sell-off in Turkish assets which triggered broad risk aversion at the onset of European trading. The meltdown started after news broke that Turkish police arrested Istanbul major and main Erdogan rival Ekran Imamoglu on corruption charges and on alleged terrorism links. Earlier this week, the state Istanbul University already cancelled Imamoglu’s higher education degree which bars him from entering presidential elections (scheduled for 2028). The opposition crackdown comes at a time where autocrats around the world feel empowered by the current makeover in Washington. The Turkish lira lost more than 10% against the euro and the dollar with EUR/TRY and USD/TRY, setting new all-time highs at respectively 43 and 41.30, before recovering some ground after Turkish lenders were rumoured to have sold around $8bn in FX to prop up the ailing currency. Turkish bonds and stocks (-8%) sold off as well. German bond yields gapped around 6 bps lower, before starting an intraday comeback. At the time of writing, daily changed are almost unchanged on a daily basis. The Eurostoxx50 started with a 0.5% deficit, but currently trades near flat as well. EUR/USD corrects from the 1.0940 area towards 1.09 on genuine USD strength. USD/JPY outperforms with a first 150+ quotation since end February after the BoJ kept its policy rate unchanged at 0.5% this morning. Governor Ueda did suggest a rate hike could come as soon as at the next meeting (May 1) with domestic inflation risks (eg shunto wage negotiations) outweighing external growth risks (tariffs). Eco calendars were empty in the US and EMU. ECB vice governor de Guindos and ECB Villeroy both stressed that there isn’t a predetermined path for policy rates, keeping a data dependent approach.
• Attention turns to the Fed tonight. Data recently have added to a growing market narrative of stagflation, mostly in soft indicators (e.g. consumer confidence, NY manufacturing index). But hard economic data wasn’t so bad (services ISM, solid payrolls growth, IP, housing). That should prevent the Fed (and therefore the new projections) from getting carried away by the recent bearish (stock) sentiment, especially with uncertainty on the tariff narrative still this big. It’s not until April 2, when Trump’s reciprocal tariffs are to be announced, it’s worth making an analysis. In theory there’s little to push the Fed off the January track (extended pause; dots suggesting two rate cuts in 2025).
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• A quarterly survey of the Origo Group commissioned by the Swedish Riksbank showed that inflation expectations have increased substantially since December. Respondents see CPIF inflation (with fixed interest rates, the preferred inflation measure of the Swedish Riksbank) at 2.3% one year from now, at 2.2% in two years’ time and 2.2% in a five year horizon, to be compared with 1.7%, 1.9% and 2% respectively in the December survey. Respondents also turned more positive on economic growth for the first (2% from 1.6%) and the second year (2.4% from 2.1%). This also resulted in expectations for the Riksbank polity rate at 2.2% over the next two years, compared to 2% in December. Respondents thus de facto expect the Riksbank to have reached the bottom of its easing cycle at the current level of 2.25%. The Riksbank concludes a regular policy meeting tomorrow at 9.30 CET and is largely expected to stay on hold. The krone since end January was a marked outperformer against a strong euro with EUR/SEK easing from the 11.50 area to currently 11.01, even as the move lost some momentum over the previous days.
• News agency Reuters reported that the European Union will tighten steel import quotas to reduce the inflows of steel by a further 15% from April 1. Reuters obtained the information from European Commission Executive Vice President Stephane Sejourne. Sejourne indicated that he expects that after the US raises import tariffs by 25%, producers from Canada, India and China would look to sell increasing volumes in the EU. The European Commission will also propose other trade-related measures to support the metals industry. The first measure to reduce quota’s (safeguards) will reduce the imports that come in the EU free of tariffs. Imports outside the quota will be hit by a 25 % levy. The Commission is also preparing new measures to replace the safeguards in Q3 which cannot be extend under WTO beyond June 2026. In a broader perspective, Sejourne also said that the EU did not want to depend on imports for steel, which will be crucial in the EU's rebuilding of its military industrial complex after the Ukraine war. “We want to keep our steel in Europe and be able to recycle in Europe. It's a strategic issue. There is no defense industry without steel, there is no automobile without steel and we want to keep our industries.”
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EUR/TRY: lira takes another heavy beating as President Erdogan tries to silence the opposition
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USD/JPY: BoJ stands pat this morning, but opens the door for a new rate hike in May
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US 2y yield: what will prevail tonight? Upside inflation risks or downside growth risks
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Dutch TTF gas future: Russian stance in peace talks ends relief rally in gas prices
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