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Quite a long series of US data (including consumer confidence, house price data, durable goods orders and regional business sentiment) yesterday failed to provide any clear directional guidance for US and broader markets trading. US and German yields lost 1-2 bps across the curve. This low volatility environment initially supported a further upward drift in equities, but US indices surrendered in the final hour of trading. The S&P 500 closed 0.28% lower. The Eurostoxx 50 still finished in green (+0.40%) at a multi-year top. The dollar overcame initial softness, but the move already occurred before the correction in US equities. DXY closed at 104.30. EUR/USD intraday filled offers above 1.086, but closed at 1.083. The dollar outperformed the yen despite ongoing interventions warnings from Japanese officials (close 151.56).

In central Europe, the forint drew some comfort as the Hungarian central bank (MNB) scaled back the pace of rate cuts from 100 bps in February to 75 bps yesterday (to 8.25%). The MNB downwardly revised its 2024 inflation outlook to a range of 3.5%-5.0%. However, financial stability issues make the MNB to follow a careful approach. Vice governor Virag at the press conference even indicated that MNB policy entered a new phase due to market risks. Virag signaled a further slowing of the pace of rate cuts in Q2. The forint strengthened from levels close to EUR/HUF 397 yesterday morning to close near EUR/HUF 395.5.

This morning Asian equities are trading mixed with China underperforming and Japan outperforming. The Nikkei (+0.9%) just missed a new record close. The yen touched the weakest level against the dollar since 1990, but the USD/JPY 152 barriers survives.  BOJ member Naoki Tamura advocated slow but steady further policy normalization. However, these comments didn’t change market perception that conditions will remain loose for quite some time to come, keeping the yen in the defensive. Further yen losses were avoided as Fin Min Suzuki warned that they are watching market moves with a high sense of urgency and that they will take bold measures against excessive moves. Intervention fears pushed USD/JPY back to the 151.7 area. However, ‘hard money’ is probably needed to give the yen some real breathing space. Later today, there are no important data in the US. In Europe confidence data from the European Commission will be published and Spanish inflation data might give a first glimpse of the EMU March inflation dynamics. The Swedish Riksbank is expected to leave its policy rate unchanged, but markets will look out how strongly it reconfirms guidance on a possible rate cut already in H1. In core US and EMU yield markets we expect more technical trading ahead of additional EMU national inflation data tomorrow and the US PCE deflators on Friday. EUR/USD still is at risk of losing the 1.0796 support area.

News & Views

Australia’s monthly CPI indicator rose 3.4% y/y in February. Prices have been rising at that pace for three consecutive months now. Excluding volatile items including fuel, fruit and vegetables, a core gauge rose 3.9%, down from 4.1%. The Australian Bureau of Statistics singled out housing (4.6%), food (3.6%), alcohol and tobacco (6.1%) and insurance & financial services (8.4%) as the most significant contributors. Within housing, rents increased by 7.6%. The acceleration from 7.4% in January reflects a tight rental market and low vacancy rates across the country. Food price rises were the slowest (annually) since January 2022 amid falling prices in meat and seafood as well as fruit and vegetables. Holiday travel and accommodation prices eased 1.3% y/y. The Australian dollar fell marginally as the 3.4% outcome defied market expectations for a minor uptick to 3.5%. But AUD/USD soon recovered, trading virtually unchanged around 0.653.

Cocoa prices topped $10 000 per ton for the first time ever yesterday. Prices have been steadily rising since 2023 and hovered just north of $4000 at the beginning of the year. The meteoric rise in just two months finds its roots in poor harvests from key African producers. Bad weather and old, decaying trees suffering from disease have slashed crop yields in Ivory Coast and Ghana, which together cover more than two-thirds of the world output. The price surge is likely to have been exacerbated by a short squeeze as well.

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