Swiss Franc Could Rise on ECB Rate Cuts But Any Ukraine Progress a Risk — Market Talk

Societe Generale in its early Friday economic news summary pointed out:

— bid with before Munich security conference, natural gas retreats below EUR50/Mwh. Euro Stoxx -0.2% after the United States imposes customized reciprocal tariffs from April 1. 30-year U.S. Treasury refunding tailed 1.1bps, strong non-dealer demand of 83.7%. U.S. Treasury Secretary Bessent: any tariff-linked rise in inflation would be slight, one-time. 10-year BEIR steady at 2.45%.

— Japanese investors bought net 1,75 billion yen in international bonds last week, the most since last September. Sold net 1,27 billion yen international stocks.

— Day ahead: European Union, U.S., Ukraine, Russia officials attend Munich conference. U.S. retail sales, SocGen forecasts -0.3% month over month, excluding autos 0.2%, 'control' 0.3%. Industrial production, SocGen forecasts: -0.3%. Federal Reserve speaker Logan. Eurozone Q4 gross domestic product second reading. Romania's central bank forecast to stay on hold.

— Nikkei -0.8%, EUR 10-year IRS steady at 2.38%, Brent crude +0.2% at $75.4/barrel, Gold +0.5% at $2,933/oz.

The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.

1153 GMT - While the fall in Swiss inflation to 0.4% in January from 0.6% was expected, underlying inflationary pressures are likely still a bit stronger than country's central bank expected, Capital Economics' Adrian Prettejohn says. Of greater interest to the Swiss National Bank than the headline fall will be the rebound in private services inflation excluding rents, to 1.5% in January from 1.1% in December, primarily due to a rise in transport services inflation, he says in a note. However, although that might slightly reduce the likelihood that the SNB will cut interest rates by 25 basis points in March, this still seems the most likely outcome. Swiss inflation is still likely to stay low this year, Prettejohn says. (edward.frankl@wsj.com)

1142 GMT - European natural-gas prices plunge after the U.S. and Russia agreed to start talks to end the war in Ukraine, raising prospects that the Kremlin's flows to the continent will resume. A peace deal "may lead to higher Russian pipeline natural gas flows through Ukraine to Europe--which would effectively restore the continent's cost competitiveness back to pre-2021 energy crisis levels," MUFG analysts say. The benchmark Dutch TTF contract is down 6.3% to 52.15 euros a megawatt-hour, after breaking above 58 euros earlier this week. Meanwhile, EU countries are set to discuss the possibility to relax the bloc's gas-storage targets, according to a Reuters report. As of Tuesday, EU storage was only 47.2% full as a result of colder temperatures and lower wind-power generation, raising concerns over refilling requirements for next winter. (giulia.petroni@wsj.com)

1119 GMT - Unilever guidance is especially weak, as subdued consumers and rising commodity prices are taking a toll, Chris Beckett, head of equity research at Quilter Cheviot, writes. Consumers simply aren't spending as they were in the aftermath of the pandemic, and an uncertain economic environment has caused consumers to pull back, with discretionary items the first to go, he says. Beckett says it was hoped that Unilever was embarking on a sustained turnaround, and although it might still be happening, it will take longer than hoped. "Unilever may be right in that the second half of 2025 will be better, but a lot can change between now and then, especially given the political and economic upheaval we are witnessing." Shares fall 7.4% to 44.01 pounds. (dominic.chopping@wsj.com)

1054 GMT - The chronic problems besetting eurozone industry aren't likely to be cured anytime soon, Capital Economics' Elias Hilmer says.Production dropped by 1.1% in December, more than economists had estimated, according to figures released Thursday. And there is "little scope for output to turn a corner in the coming months," Hilmer warns, noting weakness in surveys of the sector."Production will remain subdued in the coming months an the structural problems facing the ailing sector are unlikely to fade soon," he says. (joshua.kirby@wsj.com; @joshualeokirby)

1042 GMT - Investors revise down expectations for future interest-rate cuts by the Bank of England after data showed the U.K. economy unexpectedly rose by 0.4% in December, resulting in 0.1% growth over the quarter. Wednesday's stronger-than-expected U.S. inflation data also increased concerns about growing global inflationary pressures keeping interest rates higher. Money markets now only fully price in a BOE rate cut in June, having previously priced this for May, LSEG data show. The chances of a rate cut in March has dropped to 21% from 27% last week. The U.K. economy remains fragile, however. Next week's U.K. labor market and inflation data could reignite rate-cut expectations, XTB's Kathleen Brooks says in a note. (miriam.mukuru@wsj.com)

0958 GMT - The unexpected surge in U.K. economic activity in December, by 0.4%, reduces the chance that the Bank of England will cut its interest rate in March, Berenberg's Andrew Wishart says in a note. An increase in services output, supported by signs of a strengthening in consumer spending over Christmas, raised GDP well above the consensus forecast, he says. "This will reassure the BOE that the economy is not suffering from a sudden slump in demand, and therefore reduces the chance of an interest-rate cut at the next meeting," Wishart says. While there are reasons for caution, including that domestic demand rose exclusively due to increases in government spending and stock building, there is no sign of a consumer collapse either, he says. (edward.frankl@wsj.com)

0938 GMT - Sterling remains vulnerable even after U.K. economic data for the fourth quarter and December were better than expected, Monex Europe analysts say in a note. Increased U.K. government spending seems to have supported economic activity but this is an unsustainable method of sustaining growth in the longer term, they say. "It also leaves the Treasury with a headache." Treasury chief Rachel Reeves faces hard decisions for the March budget with her fiscal headroom likely having evaporated based on these latest figures. Sterling is at risk of falling in the coming months even if the U.K. outlook looks relatively more favorable compared to the EU. (renae.dyer@wsj.com)

0927 GMT - Central and eastern European currencies could continue to rise on optimism over a Ukraine-Russia peace deal, ING's Frantisek Taborsky says in a note. President Trump said he held a constructive phone call Wednesday with his Russian counterpart Vladimir Putin about a ceasefire in Ukraine. Similar headlines could be forthcoming, supporting central and eastern European currencies, Taborsky says. These currencies are also supported by a higher euro versus the dollar and improving rate differentials, he says. "We expect the current rally to continue until at least the end of the week." EUR/PLN hit a seven-year low of 4.1567 earlier, according to FactSet. EUR/HUF reached a 16-week low of 400.960 earlier. (renae.dyer@wsj.com)

0913 GMT - Oil prices extend the previous trading session's losses on news that U.S. President Trump and Russia's Vladimir Putin agreed to open talks to end the war in Ukraine. Brent crude is down 0.5% to $74.80 a barrel, while WTI falls 0.6% to $70.97 a barrel. Both benchmarks closed more than 2% lower on Wednesday, pressured by prospects of lower supply risks and speculation over a potential easing of restrictions on Russian producers. Meanwhile, hotter-than-expected inflation data in the U.S. is also weighing on sentiment, upholding the Federal Reserve's more cautious stance on interest-rate cuts. (giulia.petroni@wsj.com)

0907 GMT - Delivery Hero's full-year 2025 guidance points to another year of improved profitability and cash flow generation, Jefferies analysts write. The guidance is well-aligned with consensus expectations, they say. The German food-delivery company comfortably met its full-year 2024 guidance after a strong fourth-quarter, they write. Delivery Hero reported a slowdown in growth in Asia but this was not a surprise to investors, they write. The company is expected to use its call with analysts later in the day to explain its turnaround strategy in South Korea, the analysts add. Shares trade up 6.6% at 28.01 euros. (adam.whittaker@wsj.com)

0845 GMT - The euro's gains could have further to run on optimism over a ceasefire in the Ukraine-Russia conflict, ING analyst Chris Turner says in a note. "Progress on peace in Ukraine could be an important positive for European countries should it deliver lower energy prices and encourage broader investment on the back of something like a new Marshall Plan," he says. However, the threat of U.S. tariffs on Europe could limit the euro's appreciation. Sticky U.S. inflation and interest rate differentials in favor of the dollar could also hold back the euro. The euro rises 0.3% to $1.0418, having earlier reached a one-week high of $1.0441, according to FactSet. (renae.dyer@wsj.com)

0838 GMT - Gold futures rise, sitting close to all-time highs on safe-haven demand. Futures are up 0.4% at $2,938.90 a troy ounce, nearing the record $2,968.50 an ounce set on Tuesday's session. Gold's gains come despite rising U.S. yields, traditionally a headwind to the precious metal's price, Swissquote Bank's Ipek Ozkardeskaya says in a note. This usually negative relationship has broken down as big buyers, including central banks, flee typically safe U.S. debt and replace it with gold, Ozkardeskaya writes. Spot gold prices hitting the $3,000 an ounce level could trigger some profit taking and a tactical opportunity to short the yellow metal, but the medium to long-term outlook for gold remains positive, Ozkardeskaya says. "If Bitcoin could rally to $100,000, gold could well continue its journey toward... $4,000 per ounce," she adds. (joseph.hoppe@wsj.com)

While the fall in Swiss inflation to 0.4% in January from 0.6% was expected, underlying inflationary pressures are likely still a bit stronger than country's central bank expected, Capital Economics' Adrian Prettejohn says. Of greater interest to the Swiss National Bank than the headline fall will be the rebound in private services inflation excluding rents, to 1.5% in January from 1.1% in December, primarily due to a rise in transport services inflation, he says in a note. However, although that might slightly reduce the likelihood that the SNB will cut interest rates by 25 basis points in March, this still seems the most likely outcome. Swiss inflation is still likely to stay low this year, Prettejohn says. (edward.frankl@wsj.com)

Despite the jump in short-dated United States rates on Wednesday, moved higher on the back of the Trump-Putin phone call and a possible end to the Russian-Ukraine war, said ING.

Shortly before those headlines hit, the euro was also rallying on comments from European Union officials that they were currently negotiating with their United States counterparts to try and avoid tariffs, wrote the bank in a note.

Progress on peace in Ukraine could be an important positive for European countries should it deliver lower energy prices and encourage broader investment on the back of something like a new Marshall Plan, stated ING.

Yet it's the threat of trade tariffs that hangs over Europe and it seems unlikely that businesses or consumers will be able to conclude anytime soon that the tariff threat has receded, pointed out the bank. No doubt speculators are currently paring back euro short positions.

Yet those positions aren't extreme and the sticky U.S. inflation story is keeping rate spreads very wide in the US dollar's favor, noted ING. That is why this correction will likely be a hard slog back to 1.0500/0530 with an outside risk of 1.0575.

Elsewhere, can probably extend its gains, added the bank. A weaker Swiss franc (CHF) will likely be welcome for the Swiss central bank (SNB), where Swiss inflation should drop to 0.2% year over year in Q2 and the SNB has local exporters on its back over a strong Swiss franc.

ING's thoughts on Thursday's seemingly better-than-expected United Kingdom gross domestic product figures are:

"UK GDP was a bit better than feared in the fourth quarter but the outperformance was solely because of a massive increase in inventories. Remember these are volatile and don't tell us much/anything about the underlying economic fundamentals. Consumption was flat. Business investment fell sharply despite some really good numbers earlier in the year. Net trade was poor. So it's a lacklustre story which puts pressure on the Treasury to find savings. The OBR, which polices the fiscal rules, has forecast 0.4% in Q4 and therefore it will be revising down its highly optimistic 2% 2025 growth forecast."

dropped 20 pips on Thursday's data, but a re-assessment of the data could see sterling (GBP) hand back its gains. ING is negative on sterling into Q2 and suspects that will find support this month in the 0.8300/8350 area

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Societe Generale in its early Thursday economic news summary pointed out:

— Euro crosses extend gains, bid above 1.04, decouples from United States Treasury/Bund spread. risks take off (paying for Swiss franc puts) after U.S. President Trump and his Russian peer Putin agree to negotiate an end to the Russia-Ukraine war. 10-year UST consolidates at 4.65% following "shock" 0.76% month-over-month spike in consumer price index services excluding housing in January, Federal Reserve firmly on hold.

— Day ahead: U.S. producer price index, SocGen forecasts headline +0.4% month over month, core +0.2% month over month. Weekly jobless claims. European Central Bank speakers Cipollone and Nagel, economic bulletin. Poland's Q4 gross domestic product, Brazil's retail sales.

— United Kingdom Q4 GDP +0.1% quarter over quarter, or 1.4% year over year), above Bank of England's forecast of 0.1% quarter-over-quarter contraction. Private consumption flat, government spending 0.8%, business investment -3.2%, exports -2.5%.

— Switzerland's CPI slows to 0.4% year over year in January from 0.6% in December. Core edges up to 0.9% from 0.7%. Goods deflation doubled to 1.8% year over year, services inflation rose by 0.2pp to 1.8%. Swiss central bank on track for next 25bps cut in March.

— Nikkei +1.3%, EUR 10-year IRS unchanged at 2.41%, Brent crude -0.9% at $74.5/barrel, Gold +0.5% at $2,917/oz.

ING notes that periods of rotation into eurozone equities can help the euro since equity investments are largely non-foreign exchange hedged.

The bank recalls 2017 when relief after the French and Dutch elections prompted a major rerating of eurozone equities and the euro.

Frankly, it's hard to see such optimism coming through for the euro today, states ING. Growth remains poor, the fiscal cavalry remains in its barracks and the European Central Bank may well be cutting by another 100bps this year to keep rate spreads wide.

That is why, if the bank sees any short-term recovery in to say the 1.0450 area, it may well peter out there.

Elsewhere ING points out the recovery in . Again the Russia-Ukraine war story may be playing a role given that was trading above 1.05 before Russia invaded Ukraine.

A softer Swiss inflation print today and the prospect of even lower inflation next quarter — the Swiss central bank forecasts the annual rate dropping to 0.2% — warns that upside risks to may be growing. ING could see 0.9500/9520 this week as investors reprice for some positive Ukraine news out of this weekend's Munich security conference.

After last week's January inflation, ING turned its bearish view on the Czech Republic's koruna (CZK) to neutral, which seems like a good decision from today's perspective.

Higher-than-expected inflation won't allow the Czech central bank (CNB) to cut rates faster, while the whole Central and Eastern Europe region is gaining under the positive sentiment from the beginning of the Ukraine deal discussions.

As a consequence, is likely to stay in the 25.000-250 range for longer, added the bank.