KBC Sunset Market Commentary 25/03/2022 via Trader Talent

• Europe’s aspiration to cut reliance on Russian fossil energy by two-thirds end 2022 and almost completely by 2024 became a little bit more concrete today. The continent announced an agreement with the US under which Europe will receive at least 15 billion cubic meters of additional LNG supplies. That amount may go up to 50bn by 2025, when new projects are scheduled to come online, until at least 2030. For now, the extra 15bn would only replace Russian LNG flows though while the country also ships about 150bn cubic meters of gas to Europe every year. The decision is thus politically symbolic more than something else. Yet, oil and gas prices do decline. Brent eases 2% to $117/b, Dutch gas futures lose 6% to €106/MWh. European stock markets are in slightly better shape today. They erased opening losses to trade about 0.8% higher. US stocks trade 0.6% higher with the Nasdaq underperforming (flat) after US/core bond yields suddenly spiked higher. Press agency Interfax reported the Russian “forces will focus on the main thing – the complete liberation of Donbas”. Markets took it as a hint Russia may be backing away from taking over other pieces of Ukraine. Such de-escalation of the conflict may ultimately result in a less cloudy economic outlook, allowing central banks to move ahead with normalization without looking back. US money markets all but price in 200 bps additional tightening by year-end. This would align with two 50 bps hikes in May and June, followed by four regular 25 bps hikes at each of the remaining policy meeting. US yields add 9 to 14 bps in a bear flattener. The report also sharpened ECB expectations, though less intense. European swap yields add 4-5 bps across the curve. A first full hike is priced in for September with a second one discounted for December.
 
• Rising US/EMU interest rate differentials fail to support the dollar. The resilient risk climate helps EUR/USD to keep the 1.10 dry although we must admit it looks vulnerable. USD/JPY almost completely retraced morning weakness (down one big fig) to trade near multi-year highs of 122.1. EUR/CHF tested 1.02 but prevented a break lower even as the SNB yesterday signaled not to be in a hurry for FX interventions. Sterling’s weakness after disappointing retail sales this morning didn’t last. EUR/GBP is trading only marginally higher at 0.834. Central-European currencies enjoy some risk-on bids. The forint (EUR/HUF down to 373.85) and the zloty (EUR/PLN 4.73) outperform the Czech koruna (EUR/CZK 24.66). Most of today’s gains occurred before the Interfax story though – its impact was contained to rates markets.
            
News Headlines

• Belgian business confidence as published by the National Bank of Belgium declined for the fourth consecutive month from 2.3 in February to 0.4 this month. However, according to the assessment of the NBB: ‘the current context does not seem to be weighing too heavily on confidence in the business world. The decline in the business barometer that began last December has gained momentum, although still only moderate’. The sharpest loss of confidence was registered in the trade sector -6.5 from -2.6) and the manufacturing sector (-2.7 from 0.3). The building industry is less affected (1.2 from 2.3). Morale as even picked up in the sector of business related services (15.1 from 13.1).

• Today, the International Monetary Fund (IMF) meets to decide on a new $ 45 bln deal/programme with Argentina. The new programme would replace a previous one agreed upon in 2018 under which Argentina still had to repay over $40 bln. The 2018 deal with Argentina was the largest in the IMF’s history. According to sources, the country might receive funds worth of $9.8 bln once the deal is approved by the Board. Additional payments will be subject to quarterly reviews over a 30 month horizon.