Sunset Market Commentary

Markets

A slew of European data hit the wires today and after wrapping up this report some more are scheduled for release in the US (JOLTS, consumer confidence). GDP Q2 growth numbers were due in Hungary and the Czech Republic (see below), in core countries including Germany & France and the European periphery (Spain & Italy). The outcomes varied with France posting a bigger-than-expected expansion (driven by public sector expenditures as well as exports) but Germany unexpectedly contracting by 0.1% q/q. Italian growth was perfectly in line with the 0.2% consensus estimate while Spain continued its remarkable run of growth by adding 0.08% q/q (0.5% expected), the same pace as in Q1. Also featuring the economic calendar were several national July CPI numbers ahead of the European-wide figure tomorrow. Picking up where we left, Spanish inflation dropped more than expected, 0.7% m/m, pushing the y/y measure from 3.6% to 2.9%. Core CPI (non-harmonized) came in at the expected 2.8% y/y. Belgian (non-harmonized) inflation quickened from 0.22% to 0.71% in July. Headline CPI nevertheless eased slightly to 3.64% while the core gauge rose for a second month straight to 3.04%. German HICP, lastly, topped estimates marginally. Prices rose 0.5% m/m, thereby pushing the y/y figure to 2.6%.

All in all the data suggests EMU inflation should more or less come in as expected or perhaps slightly above consensus. Either way, we do not expect a major market impact. We’re not seeing one today either. The variety of the numbers makes unidirectional trade bets tricky and there’s still a lot of event risk ahead (BoJ, Fed, BoE, payrolls …). The euro whipsawed with EUR/USD temporarily rising to a day’s high of 1.0835 before turning south again around noon. The pair tested the 1.08 figure. Sterling trades marginally in the defensive, catching a breather after Monday’s intraday surge. The Japanese yen does suffer from some nerves going into tomorrow morning’s (our time) Bank of Japan policy meeting. USD/JPY’s bottoming out process is gathering momentum with the pair now changing hands around the 155 barrier. EUR/JPY is also up (167.6). European yields displayed traded choppy but eventually trade slightly lower (

News & Views

Central-European growth in the second quarter of the year disappointed. The Czech Republic’s economy expanded by 0.3% q/q, less than the 0.5% expected to be up 0.4% in yearly terms. It nevertheless marked a quickening from the 0.2% in Q1. Details are not available yet but the Czech Statistical Office said quarterly growth was supported by increasing private consumption whereas demand from abroad had a negative influence. The Hungarian economy printed a 0.2% decline, greatly missing estimates for a 0.5% expansion. The y/y figure therefore came in at a modest 1.5% only vs the 2.3% anticipated. Here, too, details lack but according to the Hungarian Central Statistical Office, contributions (in y/y terms) from construction and real estate were partially offset by a decrease in value added by the heavyweight industry. Both Czech and Hungarian swap yields promptly dropped in the wake of the release. Losses for the former rack up to 10 bps at the front. Swap yields in Hungary tank a whopping 14 to 27 bps in a bull flattener move. The Czech koruna barely lost ground, contrasting with his Hungarian regional peer. EUR/CZK stabilized near recent highs south of 25.5. It has been camping around those levels ever since a CNB policymaker did not rule out another 50 bps rate cut at this week’s (Thursday) policy meeting. EUR/HUF rose towards he 395 barrier today. The forint has been losing ground after hitting the 390 support zone Friday two weeks ago. A technical EUR/HUF rebound then coincided with risk sentiment taking a turn for the worse last week.