In the Gulf still no breakthrough
The United States leader did not set a specific deadline for receiving an offer from Tehran - K. Leavitt claimed. Thus the fate of the next round of negotiations in Islamabad remains unclear. One of the few pieces of information on this topic was the NYP reports.
Referring to its own sources in Pakistan, the tabloid reported that the resumption of talks between the USA and Iran is potentially likely within 36-72 hours. Referring to these dispatches, D. Trump replied to NYP that this scenario “is possible.” The market, however, did not “buy” the optimistic development, remembering the lack of implementation of the diplomatic plan from a few days ago.
Geopolitical events are putting upward pressure on energy commodity prices. This morning the Brent barrel is quoted near 103 USD – about 10% above the Tuesday morning level, and diesel up 12% (to 162 USD/b). Without positive information regarding a potential conflict resolution, the pressure on fuel price increases may rise.
Besides Middle East reports, today the market will see a series of macro readings. Our attention will mainly focus on the dynamics of domestic retail sales (forecast 4.8% y/y, consensus 5.8% y/y).
In addition, further deterioration in the euro zone is likely, measured by PMI indicators. For similar indices across the ocean, the market will likely look at price components rather than those showing sentiment in manufacturing or services.
Midweek volatility on UST
The first segment of yesterday’s UST trading was calm. The market tried to see positive elements in extending the ceasefire by the US administration. Some media reports also suggested a relatively quick return to peace talks (details in the first paragraph).
In the late afternoon, the FI market, among other things due to rising oil prices, began to fear that the de-escalation scenario in the near future is becoming less likely. This pushed the short end of the UST down about 4-5 basis points relative to daily lows. Longer tenors were also under similar pressure. However, the daily close did not show these fluctuations.
The change in yields of the main Treasury tenors did not exceed 1 basis point, and the close was at 3.79% (2Y), 4.30% (10Y) and 4.90% (30Y). For the Bund we did not observe a temporary strengthening of securities.
At the end of midweek trading, European debt (oil influence) began to lose clearly (especially shorter tenors). Finally, the yield change on the main Bund nodes was +5, +2 and -1 basis points to 2.57% (2Y), 3.02% (10Y) and 3.54% (30Y).
Oil market signals are putting pressure on the base FI. We assume that this dependence may persist in the coming days.
Moderate pressure on CEE FI
We have had relatively calm trading on regional treasury bonds, although this may have partly been due to their earlier close compared to, e.g., the Bund. The yield change of the 10‑year benchmarks of the Czech Republic and Hungary did not exceed 1 basis point – 4.67% and 6.00% respectively.
Domestic quotes moved slightly weaker. The PLNIRS curve shifted up by 7-5 basis points on 2‑10Y rates. However, the ASW spread did not widen – it remained at 89 basis points for the 10‑year tenor.
Ultimately, on the main nodes, the SPW yield rose by 5, 3 and 4 basis points to 4.30% (2Y), 4.86% (5Y) and 5.48% (10Y).
Today the Ministry of Finance will conduct an auction of bonds with a total nominal of 7‑12 billion PLN: OK0128, NZ0331, PS0731, DS0436 and NZ0936.
We assess that base market signals will make it difficult to recover yesterday’s losses on SPW and the 10‑year benchmark may remain within the 5.45‑5.50% range.
Further dollar appreciation
The US dollar was again gaining on the broad market. Once again, the dollar’s DXY appreciation was during the US session.
Ultimately, however, this move was not exceptionally strong and the dollar index rose by +0.2%.
EURUSD fell by 0.3%, suggesting that besides the dollar’s influence on the euro pair, it also slightly lost against other currencies.
This was especially visible on EURJPY and EURGBP, which fell about 0.3%.
EURCHF, on the other hand, moved marginally north – by 0.15%.
Today’s EURUSD opening is around 1.1710.
The pair will remain mainly dependent on geopolitical situation and overall risk perception, which should favor quotes near the lower volatility bound of recent days.
Limited currency fluctuations in the region
We have had another calm session on CEE FX.
EURHUF and EURCZK moved up by 0.2% and 0.1% respectively.
The zloty slightly appreciated in the first part of midweek trading, but later EURPLN marginally rose, ending the day near 4.2450.
The start of today’s quotes does not bring major changes to the pair.
We still assume that the threshold for larger moves in the zloty remains relatively high.
As a result, EURPLN will likely stay in the 4.23‑4.25 range until the end of the current week.
