Markets
It’s as if some ECB members were inspired by yesterday’s comment by Fed Chair Powell that the US central bank is not far from being confident that the time is right to start dialing back the level of policy restriction. After Fed members recently closed ranks on a first rate cut in June, he suddenly opened the door for action as soon as May. ECB President Lagarde similarly almost completely ruled out an April rate cut at yesterday’s press conference, only for French ECB member Villeroy to open the door. He thinks that it is very probable that the ECB will cut rats in spring, defining the season from April until June 21. He argues that there’s more and more confidence of getting inflation back to 2% between now and next year. German Bundesbank Nagel welcomed that markets are now on the June rate cut path stressing the increased possibility of a move ahead of the summer break. The rather soft comments from the traditionally hawkish Bundesbank come as Germany is currently “the tired man” in Europe. The economy can use the boost from a less restrictive policy. ECB Rehn stressed the independence from the US central bank and argues that the risks of premature interest rate cuts in terms of inflation control have substantially decreased. EstonianECB Muller gave more details on Q1 wage deliberations, saying that pay increases close to 5% would make it more difficult for inflation to slow. Latvian ECB Kazaks suggested that the central bank isn’t obliged to cut at each and every meeting in comments similar to the ones from Atlanta Fed Bostic. A synchronic June-September-December could be in the making with Lithuanian Simkus happy with 25 bps steps. Despite an outperformance of German Bunds on those early ECB comments, the euro held his ground above EUR/USD 1.09.
US payrolls amplified the goldilocks soft landing scenario. February job growth beat consensus (275k vs 200k) but a cumulative 167k (!) downward revisions for December/January overshadowed the headline numbers. Average hourly earnings only rose by 0.1% M/M (vs 0.2% forecast) to be up 4.3% Y/Y. The unemployment rate ticked up from 3.7% to 3.9% (highest since January 2022) with a stable participation rate (62.5%). US Treasury yields currently lose up to 5.5 bps at the front end of the curve (2-yr) compared with 7.7 bps for Germany. EUR/USD sets a new short term high at 1.0981. US stock markets barely profit, opening up to 0.3% higher (albeit at record levels).
News & Views
The Food and Agriculture Organization of the United Nations (FAO) price index showed that food prices eased further in February, by 0.7% M/M and 10.5% Y/Y. Decreases for cereals and to a lesser extent vegetable oils more than offset increases for sugar, meat and dairy products. Cereal prices declined 5% M/M and 22.4% Y/Y. Maize prices dropped the most on expectations of large harvests in Argentina and Brazil along with competitive prices offered by Ukraine eager to take advantage of the smooth running of the maritime trade route. Vegetable oil prices eased 1.6% M/M and 11.0% Y/Y. Dairy prices rose modestly (1.3% M/M) but still were 13.4% lower Y/Y. Meat prices (+ 1.8% M/M) reversed seven months of consecutive drops to stand 0.9% below last year’s value. Sugar prices showed a second monthly increase (3.2%), rising 12.5% Y/Y mainly on concerns for the upcoming season in Brazil following a prolonged period of below-average rainfall.
Hungarian inflation rose by 0.7% M/M in February, but this rather high monthly pace still allowed the Y/Y measure to ease from 3.8% to 3.7%. Food prices rose 0.2% M/M, electricity gas and other fuels became 0.6% more expensive. Services added 0.6% M/M bringing the Y/Y figure at 10.7%. Core inflation measures as calculated by the Hungarian central bank (MNB) all eased Y/Y (core ex indirect taxes 5.1% from 6.1%; CPI ex processed food 7.1% from 8.1%; sticky price CPI 7.7% from 6.8%). The slowdown in (core) inflation probably will continue to fuel the debate on the appropriate pace of MNB rate cuts. At the February meeting, lower than expected inflation caused the MNB to step up the pace of rate cuts from 75 bps to 100 bps, but this triggered a substantial loss of the forint. A similar 100 bps move end March probably risks a similar reaction. EUR/HUF eased to 394 today, but these levels still suggests vulnerability to a too fast pace of MNB easing, especially if disinflation slows down toward the summer (Q2).
