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In the absence of key eco data, both in the US and Europe, central bankers’ talk today was again earmarked as the main guide for bond markets. ECB board member Isabel Schnabel in the FT gave an in extenso assessment on the importance of the ECB walking the last mile to defeat inflation. She warns on a slowdown in the disinflationary process, especially in the services sector. Nominal wages are rising strongly as employees are trying to catch up on their lost income. At the same time Schnabel sees a worrying decline in productivity. This combination leads to higher unit labour costs. Question is how this will translate into firm’s pricing. Here monetary policy should continue to do its job. A restrictive policy dampening aggregate demand in this respect will make it more difficult for firms to pass through higher costs. The combination of sticky (services) inflation, a resilient labour market and at the same time a loosening of financial conditions makes Schnabel conclude that the ECB should be patient and cautious, even more as recent activity data (PMI’s) suggest that the peak of policy transmission might have passed. Schnabel’s well-founded analysis maybe helped to put a floor to yesterday’s retracement in yields. However, moves in interest rate markets still are limited on both side of the Atlantic. Both US and EMU yields add 1-2 bps across the curve before paring gains again amid intensifying worries in the US regional bank saga. Later today, Fed governors Kugler, Collins, Barkin and Bowman still are scheduled to speak. Fed Kashkari in an interview with CNBC suggested that he currently considers 2-3 rate cut as appropriate. However, more than additional CB guidance, markets further out probably will be driven by confronting incoming inflation, and equally important, activity data against the well-flagged CB guidance. A record $42 bln sale of US Treasuries might give some insight on the supply-demand balance in the US bond market after recent cheapening later today. The absence of bond market volatility is helping equities to hold near recent peak levels or even touching new records The Eurostoxx 50 is trading marginally lower after touching a minor new multi-year top at the open this morning. The S&P 500 even opened at new all-time highs. For now, there are no spill-over effects from the tensions amongst some US regional banks toward the broader equity market. In FX, some softening after recent rally for now is the path of least resistance for the dollar. DXY is revisiting the 104 big figure. EUR/USD is drifting higher in the upper half of the 1.07 big figure (1.0775) after a twice rejected test of the 1.0724 December low. Still the picture for the EUR/USD pair remains fragile/unconvincing. Sterling remains in good shape outperforming (admittedly slightly) the dollar (cable again north of 1.26) and the euro (EUR/GBP 0.853).

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EUR/HUF rises towards 388 in a move that shows the Hungarian forint clearly underperforming regional peers today. HUF came under pressure in early European dealings before extending losses after the European Union launched a new legal procedure against Hungary. The Commission today sent a letter of formal notice as a first step that could potentially lead to a lawsuit. Hungary has two months to reply. At the heart of the issue is the country’s Defence of National Sovereignty legislation, granting a newly created agency the power to probe organizations (including political parties, non-governmental organizations and the media) for possible violations of national sovereignty. The EC on its website underpinned the move by saying that “the Hungarian legislation at stake violates several provisions of primary and secondary EU law, among others the democratic values of the Union; the principle of democracy and the electoral rights of EU citizens; several fundamental rights enshrined in the EU Charter of Fundamental Rights […]; the requirements of EU law relating to data protection and several rules applicable to the internal market.” The new infringement procedure adds another layer of doubt to the disbursement of some €21bn in funds that are currently withheld. It’s also likely to anger president Orban, who only recently backed down on its opposition for additional Ukraine aid.

The Belgian Debt Agency successfully launched the new 30-y June 2055 OLO 101 bond. The syndicated sale printed €5bn at OLO+4 compared to initial guidance of OLO+7 area. Books were reported in excess of €62bn. Combined with the 10-y syndication in January (raising €7bn), the Debt Agency has completed about 30% of this year’s total OLO funding need (€41bn). Based on the 2024 funding plan, the BDA has one more syndicated sale in store for this year. The final one will have a medium term maturity of five or six years.

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