Good Morning from New York.

This is an interesting time to see clients in the US since the overwhelming consensus is that the banking crisis is a bigger issue for the US relative to Europe. I get the arguments why, but I want to remind you that LCR rules in Europe are based on the false assumption that household deposits are less sticky than corporate deposits, which currently does not pass a reality test as corporate deposits are leaving the system at 2x the speed of household deposits.

This morning we received news on Spanish inflation and for once we had a clear surprise to the “downside” of expectations. This bodes well for Europe as Spain is a decent leading indicator of broader European price pressures since they moved faster in both adopting and removing subsidies on necessities during the pandemic.

European inflation will likely be around 3% already before summer. This is good news for inflation plagued countries in the Eastern part of Europe and if you want to add carry bets in FX space, we still find HUF to be the best option (even if we are currently sidelined in that trade). Over time, it probably questions whether the EUR can keep gaining versus the USD, but that is a topic for another blog-post.

Chart 1: European inflation will now surprise clearly on the low side

Assuming that European inflation drops further in coming months, we stick to our view that