HUF: Forint Drifts Higher Alongside Regional Peers as EUR Recovers Off Lows
The forint has drifted higher alongside its CE3 peers, with the regional currencies moving in tandem with the recovery off overnight lows for EURUSD. Local news flow has been relatively light this week, while the NBH offered no surprises at its rate-setting meeting yesterday.
- Nevertheless, ongoing hawkish language may continue to support the forint from a carry perspective after Governor Varga repeated that rates may need to stay at their current levels for “an extended” period. Indeed, both PLNHUF and CZKHUF are trading around 0.5% lower compared to Tuesday’s highs.
- Meanwhile, EURHUF continues to trade below the 20-and 50-day EMAs. Bearish trend conditions were bolstered last week after the cross fell to a new cycle low, and as such, focus remains on the 400.00 support handle. Key short-term resistance has been defined at 406.95, the May 9 high. A break would highlight a potential reversal.
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SPAIN DATA: Uptick In Q1 U-rate Not Yet A Cause for Concern; Q1 GDP Tomorrow
Consensus expects Spanish Q1 GDP growth at 0.7% Q/Q, which would follow three consecutive quarters of 0.8% sequential growth. That would keep Spain as the clear Eurozone growth outperformer, with analysts expects more subdued readings in France (0.1%), Germany (0.2%) and Italy (0.2%). This morning’s data is consistent with some softening of momentum compared to last year, but still solid growth overall.
- Spanish retail sales fell 0.2% M/M in March (SWDA), the third monthly fall in the last five months. Although the Y/Y rate remained solid at 3.6% (vs 3.6% prior), 3m/3m growth eased to 0.3% (vs 0.6% prior).
- The Q1 unemployment rate was 11.4%. That’s a notable rise from Q4’s 10.6%, particularly with Eurostat’s monthly LFS unemployment rates at 10.5% in January and 10.4% in February. It’s certainly not a cause for concern yet though, with the unemployment rate having drifted lower consistently post-Covid to a near 20-year low.
- Furthermore, employment growth remains relatively solid: Job growth was -0.4% Q/Q NSA in Q1, but +0.7% Q/Q SA and +2.4% Y/Y (vs +2.2% in Q4)
GERMAN DATA: IFO Employment Picks Up From Lows But Remains Below Neutral
The IFO employment barometer rose to 93.9 points in April, up from March's 92.8, and this marks the highest print since September. Despite the increase, the indicator remains in contractionary territory, indicating further job cuts.
- “It is still too early to speak of a trend reversal on the labor market [...] we are seeing a sharp rise in uncertainty, which could exacerbate the situation again”, IFO comments.
- Across sectors, improvements were broad-based barring the construction industry - see chart below.
- The Eurozone flash PMI saw "continued falls in employment in the largest two Eurozone economies" in April - also painting a weak picture of the German labour market.
- Specifically in the small- and medium enterprise sector, the German labor market is deteriorating currently, with employment declining 0.7% Y/Y in March according to Datev data seen by newspaper FAZ. The broader monthly labour market update for Germany is due Wednesday, with unemployment expected to tick up by 15k in March, but the u/e rate unchanged at 6.3%.
SWAPS: Goldman Still Look For German Spread Narrowing Medium-Term
Goldman Sachs write “a further relaxation of risks from here would be consistent with a renewed swap spread tightening, led by the front-end. In the medium term, we continue to expect the German free-float to increase on rising deficits and ECB QT, but note that foreign official inflows could provide a partial offset. In this context, though any tightening is likely to proceed at a slower pace than what has been seen since H224, we think the hurdle is high for spreads to stay at recent wides”.
