HUF: Forint Firms Alongside EM Peers Following Powell Comments
EURHUF (-0.25%) has extended the pullback from the week’s earlier high as the forint firms alongside its EM peers following comments from Fed Chair Jerome Powell yesterday evening. Powell said policymakers could move cautiously as they continue to cut interest rates, leading to broad-based gains across the Asia FX space overnight with EMEA currencies following at the start of the European session. For EURHUF, today’s losses narrow the gap to initial support at 410.75, the 20-day EMA. Topside focus remains on 415.92, the Dec 13 2022 high.
- A Politico piece published this morning – which stated that unless Hungary can carry out 17 measures and gain the Commission's approval by Dec 31, around EUR 1bn in EU cash will be gone for good – has had little bearing on HUF. Meanwhile, retail sales rose 3.6% y/y in October, above expectations, while the trade surplus widened to EUR 965m. Both did little to move the needle as well.
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EURIBOR OPTIONS: ERM5 Upside Package Bought
ERM5 98.00/98.125 call spread vs. 97.625/97.50 put spread. Paper buys the call spread for a net 0.5 on 4.5K. ERM5 last 97.840.
SPAIN T-BILL AUCTION RESULTS: 6/12-month letras
| Type | 6-month letras | 12-month letras |
| Maturity | May 9, 2025 | Nov 7, 2025 |
| Amount | E1.517bln | E3.44bln |
| Target | E4.5-5.5bln | Shared |
| Previous | E3.344bln | |
| Avg yield | 2.840% | 2.610% |
| Previous | 2.869% | 2.579% |
| Bid-to-cover | 2.24x | 1.56x |
| Previous | 2.15x | 1.61x |
| Previous date | Oct 01, 2024 | Oct 01, 2024 |
GERMANY: Debt-Funded Sovereign Wealth Fund - Update
The likely head investment manager of the planned German debt-funded sovereign wealth fund gave some updated info on its setup in an interview here. The fund is planned to have around a E200bln size by 2036, with the intention that it can use the spread between Bund yields and expected returns on global equity investment to plug holes in the German statutory (currently fully pay-as-you-go funded) pension scheme.
- Planned gross returns are 6% compared to estimated bund yields at 3% (10y Bund yields remained below 3% constantly during the current cycle).
- Initial plans are for a 80% public equities and 20% private equity / infrastructure split. Across regions, plans are 40% Europe, 40% US, and 20% RoW.
- Investment will be spread over time: E12bln in 2025 (some initial equity investment on top), then growing by 3% per year until 2036. The debt investments are included in the current federal net issuance estimates.
- First payouts to the pension scheme are planned for 2036, but conditional on 10% net investment gains being reached cumulatively.
- A net return of 3% on a E200bln fund would yield around E6bln income per year - 1.6% of E380bln statutory pension expenditure in Germany.
- There was no specific info in the interview if the international investments will be FX-hedged or not.
- The head manager said consensus for the setup of the fund is wide-spread across parties, so also if the current traffic light coalition is not able to finish the setup, it seems likely the fund will be implemented at some point.
- However, there already appear to be some delays, as the fund was initially planned to be passed by this Summer. The plans are currently still being discussed in a federal parliamentary committee.
- Anja Mikus (the planned head manager) is currently CEO/CIO of the German nuclear waste disposal fund KENFO, which is also planned to be responsible for the pension fund until 2026. After then, a separate entity could be set up.
