02 March 2023
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No slowdown for German annual inflation

By Edward Bell

Inflation in Germany accelerated in February, rising by 0.8% m/m in February and keeping the annual rate at 8.7%. Markets had been expecting a deceleration in price growth but like inflation numbers out from France and Spain earlier this week, inflation is still proving to be an enormous challenge for the European Central Bank. Food prices were behind the gain in February though services and core goods have shown little sign of moderating. The European Central Bank meets March 16 with a 50bps hike entirely priced in.

The US ISM manufacturing index improved in February, rising to 47.7, up from 47.4 a month earlier. While still in contraction territory, the index is at least not heading any lower for now. New orders and new export orders both improved last month while prices paid moved into the positive side of the ledger for the first time since September last year. Production ticked lower, however. The services index will be released later this week with markets still expecting decent growth of 54.5.

Egypt has announced it will increase fuel prices in the country in March, hiking the price for mid-range gasoline to EGP 11.50/litre, up from EGP 10.75/litre while lower grade fuels will also see increases. Cutting fuel subsidies will be another step to meeting the condition of IMF support after a new USD 3bn extended fund facility was agreed toward the end of last year.

Lebanon’s central bank will implement a new exchange rate of LBP 70,000/USD from today after already devaluing the pound from its decade long level of 1,500 to 15,000 earlier in the month. Press statements suggest that this new much weaker rate will be applicable to all demands for foreign currency from the central bank.

Today’s Economic Data and Events

  • 14:00 EC CPI February y/y: forecast 8.3%
  • 14:00 EC Unemployment Jan: 6.6%
  • 17:30 US initial jobless claims Feb 24: 195k

Fixed Income

  • US treasuries sank further overnight in response to the pick-up in prices paid in the ISM manufacturing index and also to hawkish commentary from more Fed officials. Neel Kashkari, head of the Minneapolis Fed, said he was “open-minded” about whether a 25 or 50bps hike will be needed at the next FOMC meeting. Yields on the 2yr UST rose 6bps overnight to 4.8764 and are extending the move higher today, putting 5% within reach. The 10yr UST also dropped with yields up 7bps at 3.9925%.
  • The hot inflation print from Germany helped to push European bonds lower overnight with 10yr bund yields adding 6bps to 2.704% while 10yr French bond yields added 7bps to 3.183%. Gilt yields ticked up, rising by 1bps to 3.832%.
  • Morocco is pricing a USD 1.25bn 5yr at 195bps over Treasuries as well as a USD 1.25bn 10.5yr tranche at 260bps over. Both tranches have tightened substantially from initial pricing.


  • The dollar pulled back overnight even as yields continued to push higher. EURUSD had been rising throughout the day but the stronger than expected German inflation number helped to keep it strong, rising by 0.9% overnight to 1.0668. GBPUSD had a choppy day, trading up to nearly 1.21 down to 1.1950 before closing essentially unchanged at 1.2029. USDJPY pulled lower mid-day but then reversed the losses and closed flat at 136.19.
  • Commodity currencies all closed in the green with USDCAD falling by 0.4% overnight to 1.3594 while AUDUSD added 0.5% to 0.6761 and NZDUSD was the standout performer, adding 1.2% to 0.6257.


  • More hot inflation data from the Eurozone weighed on European equity markets yesterday as the DAX closed 0.4% lower and the CAC lost 0.5%. By contrast, the UK’s FTSE 100 managed to close up 0.5%.
  • In the US, the Dow Jones closed flat but both the S&P 500 (0.5%) and the NASDAQ (0.7%) ended the day down.
  • Locally, the ADX added 0.1% and the DFM 0.3%. The Tadawul gained 0.9%.a


  • Oil prices gained for a second day running overnight with Brent futures up 0.5% to USD 84.31/b and WTI adding 0.8% to USD 77.69/b. the positive numbers from China’s PMI overnight helped to support prices while in the US the inventory stock build was relatively modest by the standard of recent weeks, with inventories up by 1.1m bbl. Gasoline stocks pulled lower along with a big draw in propane inventories. Oil production was unchanged at 12.3m b/d while crude exports rose by 1m b/d to 5.6m b/d.

Written By

Edward Bell Head of Market Economics

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