HUNGARY: OTP Bank Files Constitutional Court Complaint on Interest Rate Caps
OTP Bank have filed a complaint to the top court on Hungary's government-imposed interest rate caps. The statement reads: "According to OTP Bank Plc., the referenced amended Government Decree retroactively, unnecessarily, and disproportionately interferes with private law relationships without constitutional justification. Therefore, the petitioners request the Constitutional Court to establish that the provisions of the Government Decree, as well as its repeated extensions, are contrary to the Fundamental Law"
- Some of Hungary’s biggest lenders have previously asked the Constitutional Court to void a government-imposed cap on interest rates for mortgages and some other contracts. In May, OTP, Erste, KBC’s K&H and Raiffeisen said the measure is a “needless, disproportionate intervention.” The interest rate cap, originally introduced in 2021, is expected to cause HUF 55bn in losses for banks this year, Cabinet Minister Gergely Gulyas said earlier in the year.
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STIR: Euribor Futures Inching Lower; ERH6 Support In View
Euribor futures continue to inch lower on weak volumes. Today’s headline and regional data flow has been light, with weakness over the past five sessions seemingly a gradual reassessment of market’s ECB terminal rate expectations. Although the median analyst still sees one more ECB rate cut this year, a solid minority see rates on hold at 2.00% going forward and this view is slowly bleeding into market pricing.
- ERH6 is -1.5 ticks at 98.110. The August 1 low (i.e. pre the US labour market report) at 98.095 provides initial support.
- Weakness in EUR STIRs is in turn dragging Schatz futures to session lows. DUU5 is -2.5 ticks at 107.025, with key support and the bear trigger defined at 107.010, the Jul 25 low.
- Tomorrow’s regional calendar includes the German August ZEW survey. Meanwhile, spillover form the UK labour market report will also be eyed in the morning.
GILTS: Most Of Early Rally Holds
Gilts have been in a bit of a holding pattern since the opening rally, with the dovish details of the KPMG-REC report on jobs limiting pullbacks, even as Bunds trade around/at session lows.
- Futures topped out at 92.37 before settling back around 92.25.
- Initial resistance of note located at the August 5 high (92.84). Bulls look to regain momentum after a close below the 20-day EMA.
- Yields ~4bp lower across the curve.
- 2s and 10s hold in the lower half of the ranges witnessed since early June, 2s last 3.865%, 10s last 4.565%.
- 2s10s and 5s30s continue to trade around 70bp & 140bp, respectively.
- 10s outperform Bunds by 4bp, spread into 187bp.
- SONIA futures flat to +3.5.
- BoE-dated OIS prices 18bp of easing through year-end and 28bp through February. Contracts are 0.5-2.0bp more dovish on the day.
- Domestic focus is squarely on tomorrow’s labour market report.
- With a continually softening labour market a necessity for another BoE cut in November, Tuesday’s report will be keenly watched by the market. Unlike last month’s release there is no obvious smoking gun to watch out for as the revision to the flash payrolls print for June has returned the focus back to the wider report.
- Click for our full preview of the release.
OPTIONS: Expiries for Aug12 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.1500(E1.5bln), $1.1535-50(E1.2bln), $1.1650(E1.1bln)
- USD/JPY: Y147.30-50($1.6bln)
- AUD/USD: $0.6560-75(A$1.5bln)
- USD/CAD: C$1.3785($664mln)
