ECB: Bundesbank Chief Says Rate-Setters Must Be ‘More Stubborn’ In Inflation Fight (FT)
German central bank chief & ECB Governing Council member Nagel tells the FT that “eurozone rate-setters must be “stubborn” and continue raising borrowing costs to tackle inflation, discounting fears that recent financial turmoil could further affect Europe’s banks.”
- “Our fight against inflation is not over,” he said.
- “There’s certainly no mistaking that price pressures are strong and broad-based across the economy. If we are to tame this stubborn inflation, we will have to be even more stubborn.”
- “Eurozone inflation had to drop “significantly and sustainably” from 8.5% before the Bank would stop raising borrowing costs.”
- “There’s still some way to go, but we are approaching restrictive territory,” he then went on to tell the FT that once the ECB has ceased lifting rates it would have to resist calls to cut them. “Doing so would enable “inflation to flare up again”, as it did after the oil supply shocks of the 1970s.”
- Nagel went on to downplay contagion risks within Europe’s “resilient” banking system. “We are not facing a repeat of the financial crisis we saw in 2008. We can manage this.””
- Nagel was unsympathetic towards holders of Suisse AT1 bonds noting that “those who profit from opportunities should also take their share when risks materialise. This was one of the takeaways from the global financial crisis.”
- Nagel pointed to a want to do more when it came to reducing excess liquidity in the Eurozone via the Bank’s QT scheme. This comes ahead of the review of the Bank’s QT steps in a few months.
- He also outlined a desire to consider a shrinking of the holdings under the Bank’s PEPP “at a later stage.”
- Finally, Nagel pointed to a soft landing for both the German & Eurozone economies.
- The interview continues to place Nagel at the hawkish end of the ECB spectrum.
- Click for full piece.
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IRON ORE: VIEW: GS Projects Prices To Reach $150/t This Year
Singapore iron ore futures rallied today during APAC trading rising to $127.35/t after closing at $126.54 on Friday. They were buoyed by a report from Goldman Sachs that projects prices to reach $150/t by Q2 this year due to increased demand from China for steel making. GS expects iron ore to be around $135 in 6 months. Bloomberg reported that Chinese steel output rose to its highest in 3 months in early February. (The Australian)
BONDS: Cyclone Recovery Task Force Announced
NZGBSs were virtually unchanged at the close with early strength given up as U.S. Tsy futures slid.
- Swaps were mixed on the day with the 2-year rate 5bp higher and the 10-year rate -2bp.
- Awaiting the RBNZ’s first-rate decision since November, UBS became the first sell-side name to adopt the base case of the RBNZ pausing its tightening cycle this week to assess the implications of Cyclone Gabrielle. RBNZ-dated OIS covering this week's meeting was was little changed, showing ~46bp of tightening, with suggestions that the UBS note came out near/after the local market close. Terminal OCR expectations were higher today, closing +5bp at ~5.29%.
- Elsewhere, PM Hipkins announced a Cyclone Recovery Task Force and a Cyclone Support Package. He also said he would consider possible wage subsidies and changes to immigration settings. Earlier, Finance Minister Robertson estimated the cost of cyclone repair at ~NZ$13bn, with insurers set to cover a portion of the burden.
- Note that Robertson also stressed the need for the RBNZ to combat inflation, with a mandate that gives the Bank the capability to look through current events. It seems as if he was trying to dispel the idea of no move at the upcoming meeting, with the inflationary environment very different to what was seen at the time of the ’11 earthquake (which triggered a 50bp cut from the RBNZ).
- PPI data headlines tomorrow's local docket.
JGBS: Off Session Cheaps At Lunch Break
Little to really add to our earlier comments when it comes to JGBs, with the space consolidating just off session cheaps at the lunch break after futures pulled away from their early session highs alongside weakness in wider core global FI markets. That left JGB futures +3 at the lunch bell, while cash JGBs sit flat to 1.5bp richer across the curve.
- Participants will be digesting the details of the latest BoJ Rinban operations, with subdued offer/cover ratios seen in the details of the 1- to 3-, 5- to 10- & 25+-Year purchases (2.0-2.4x), while the 3- to 5-Year operations saw an uptick in offer/cover, to 3.1x, which isn’t particularly elevated, but is a little above what we have seen in recent weeks. This may generate some light selling pressure in that zone of the curve in early afternoon trade.
