ECB: Mixed Energy Price Evidence Behind Back To Square One Warning
Jul-10 09:58
Bank of Greece governor Stournaras earlier today warned on renewed upside inflation and downside growth risks from this week’s renewed US-Iran strikes, echoing Nagel from Wednesday. Comments of back to square one/back where we started go against crude oil futures where increases have been relatively contained although nat gas prices are closer to averages seen through the Middle East conflict (with gas/electricity having a larger weight than fuels in the HICP basket).
- Describing how a halt to the US-Iran war last month prompted a decline in oil prices, he added “These developments, if sustained, could have led to higher growth and lower inflation compared to previous forecasts.” However, “Hostilities started again, so we are back to square one.”
- What happened “shows how precarious and volatile is the situation in the Middle East and as a consequence, energy prices. It also shows the uncertainty surrounding inflation forecasts and therefore the challenges that monetary policy has to face.”
- “There’s a very close correlation of energy prices with inflation, and Europe is still a large energy importer, so it’s crucial to have stable supplies from the Middle East. The resumption of hostilities means that these supplies have been cut again to some extent, so that has produced a lot of volatility.”
- Nagel on Wednesday: “But I guess some of you read the news from this morning. Now we are, I would say, back where we started. I hope still that maybe there's another outcome of that, but the latest news is that they stopped the peace talks - Trump on top announced that he will stop also trade with Spain. Yeah, strange. And energy prices went up again."
- 1st Brent currently trades around $75/bbl to sit between Wednesday’s high of $80.6 and levels closer to $71-72 before President Trump said the ceasefire was over. That’s in comparison to circa $95/bbl in the lead up to the June meeting, sustained periods above $100 through Mar-May and a brief peak of $126.
- That said, TTF natural gas prices are more elevated on a historical basis however, currently a little under E50/MWh for back close to levels at the June ECB meeting and also averages seen through the US-Iran conflict – see charts.
- A reminder however that gas prices have a larger weight in HICP than oil prices, with electricity & gas at 5.25% of the basket vs 3.83% for fuels & lubricants. These utility prices tend to feed through more slowly but can have a longer lasting inflationary impact.
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JGBS: No Lasting Reaction To Ueda News
Jun-10 09:52
In line with the ideas outlined in the prior post (BoJ Governor Ueda's absence from the upcoming BoJ meeting is unlikely to have a material impact on the outcome), the initial uptick in JGB futures following the headlines outlining Ueda's hospitalisation was both limited (+5 ticks) and short-lived (has already reversed).
FOREX: EURCHF Extends 6-Week Highs, Edges Towards April Peak
Jun-10 09:52
- EURCHF (+0.17%) notably extends its short-term upwards momentum Wednesday, perhaps assisted by a break of trendline resistance, drawn from the March 2025 high. Price action narrows in on the cluster of highs between 0.9250-65, of which a break would place the focus on the year’s peak at 0.9350. Bullish price action comes ahead of key catalysts over the next week.
- Continued dovish SNB communications mean market expectations for tightening through 2026 have pared significantly over the last 6 weeks, contrary to both the US and the Eurozone. At typing, a more realistic 12bps of tightening are priced through December, leaving less room for adjustment compared to the almost 50bps priced in mid-March, and raising the bar for a dovish surprise at next Thursday's SNB meeting.
- Ahead of that, Sunday will see a Swiss vote on a population cap. A referendum passing could prove CHF-negative through the rates channel and raise questions around the country's relations to the EU. See here: https://mni.marketnews.com/4v3hiPh
- ING said yesterday that EURCHF should be supported above 0.9200, and their expectation of a hawkish ECB Thursday could bring the pair to 0.9300, adding today that "higher USD/CHF looks to be a key vehicle in [the] debasement retreat".
BOJ: Ueda Absence Unlikely to Shift Balance of Voting
Jun-10 09:47
- News that Ueda will miss the next rate-setting meeting has prompted some vol in JPY markets, but is unlikely to materially change the vote split on the board, keeping a 25bps rate hike to 1.00% the most likely outcome.
- The BoJ decide policy via a simple majority vote on the nine-member board, and the governor holds a deciding vote in the event of a tie (similar to the Bank of England MPC). This deciding vote will now be presumably taken up by Himino, who adopts the chair role next week.
- This meeting should see previous hawkish dissenters Takata, Tamura and Nakagawa joined by the rest of the MPC to vote for a hike this month.
- Himino echoed the BoJ base case outlined by Ueda last week in testimony to parliament last month: "we will continue to raise the policy rate and adjust the degree of monetary accommodation in accordance with economic, price, and financial developments"
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