Markets. Rates. Wednesday, 08 November 2017

Transcription

1 Wednesday, 8 November 7 Markets Rates,, -, Policy Rates,,,7,, -, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M The ECB, the Fed and the BOJ left rates unchanged as expected. The BoE raised rates by bps, but delivered a very soft message, suggesting it might be a one-off hike or at least not the start of a genuine rate cycle. US Libor rose gradually as the Fed s rate cycle unfolds. Next Fed rate hike: Dec 7. ECB kept its forward guidance on rates (hikes after end QE), meaning a rate hike before end 8 is unlikely. Euribor m is stable.. Swap Rates (%),,, -, EURIBOR M,, -, -, -, -, EUR Yr Swap Rate US Yr Swap Rate October ECB Meeting (6/) Today (/) September ECB Meeting (7/9) US swap rates declined during Summer, but moved higher in Sept-Oct, before correcting slightly. Strong eco data, hopes on US tax cuts and increased Fed rate hike expectations were the drivers. EMU swap rates only partially followed US ones, as the ECB suggests rates will stay at current levels for longer The Euribor m strip curve (red) is flatter for longer, but steeper further out, The ECB decisions at the October meeting (prolonging QE at least till Sep 8, but monthly purchase amount halved) were behind the change. Lower for longer increases longer term inflation risk/rates (slightly). P.

2 Wednesday, 8 November 7,7 Euro Swap Curve Intra-EMU Yield Spreads (Yr),,,,7,,, -, //7 6//7 6/9/7 Spain Italy Belgium France EMU swap curve reverted to the September shape after a shift higher in October. ECB policy decision had little impact. Tensions between Madrid and Barcelona on Catalonia s declaration of independence led to an underperformance of Spanish bonds compared to e.g. Italian bonds. However, both outperformed German bonds. Currencies EUR/USD EUR/GBP,,,,,,,9,9,8,8,7,7,6 EUR/USD: a modest correction lower continued in October. The dollar profited from ongoing hope on US tax cuts and a further rise in the interest differential. The ECB extended QE till September next year. So, the euro won t get official interest rate support anytime soon. EUR/GBP stayed in a sideways range ahead of the November BoE meeting. The BoE raised its policy rate, but indicated that few rate hikes are needed to bring inflation back to target. EUR/GBP.87/.86 is a solid support as long as uncertainty on Brexit remains high P.

3 Wednesday, 8 November 7 USD/JPY EUR/CZK 9 8, 8 7, 7 6, 6, USD/JPY is nearing the. MT range top. Policy divergence between the Fed and the BOJ keeps the pair well supported. A positive risk sentiment is a secondary dollar constructive factor. EUR/CZK: The koruna continued the gradual rise that started after the CNB gave up its koruna cap in April 7. The CNB raised its policy rate a second time in November and signalled that the CZK might get additional interest support next year. EUR/PLN,6,,,,,,9 EUR/HUF 9 The zloty rebounded in October. Markets assume that ongoing strong growth and tentative signs of higher prices and wages will force the NBP to raise interest rates earlier than expected. EUR/HUF: The forint decoupled from the rebound of the Czech koruna and the zloty as the MNB maintains its easing bias despite a solid economic performance. EUR/HUF rebounded north of, reversing a big parted of the rally earlier this year. P.

4 Wednesday, 8 November 7 Others Brent Crude Oil (Future) - ($/barrel) Gold (Future) - $/ounce Brent prolonged its rally in October. Global growth remains strong and demand outstrips supply, cutting inventories. OPEC respects its production limitations rather well and expectations of a production cut extension till the end of 8 are building. The summer rally of gold got exhausted early September and made place for a correction, which ran out of steam in October and early November 7 7 CRB Commodity Index Euro Stoxx 6 Global commodity prices resumed their uptrend which was interrupted in summer. The equity rally resumed in early September and pushed the EuroStoxx above the highs. Growth prospects remain fine and rate expectations are downplayed. Q earnings were solid. The three main US indices set new all-time highs and so did the Dax. P.

5 Wednesday, 8 November 7 Economic Overview Eurozone Euro zone GDP (Q/Q contribution to growth) Euro zone PMI Manufacturing (blue) & Services (red) 9, 8 7, -, - -, - 6 government household gross fixed capital formation change in inventories exports imports GDP Q/Q EMU growth marginally eased in Q, to.6% Q/Q from an upwardly revised.7% Q/Q in Q. The Y/Y measure increased though to.% from.% previously. It was the 8 th quarterly increase, showing the recovery is on solid footing. The composition was attractive with strong investment and consumption Sentiment in the euro zone manufacturing sector continues to increase (blue; 8.) while services eased slightly (red; ). Levels suggest strong growth to sustain in Q. Euro zone Inflation Euro zone Unemployment,, 9, , - - CPI - Y/Y (Left axis) Core CPI - Y/Y (Left axis) EC Industrial confidence - selling price expectations (Right axis) EMU headline inflation fell unexpectedly in October to.% Y/Y and so did core inflation to.9% Y/Y from.% Y/Y. No signs that inflation is sustainably moving towards the ECB target (%). Services Confidence - Employment Expectations(Left axis) Industrial Confidence - Employment Expectations (Left axis) Unemployment Rate (Right axis) The euro zone unemployment rate fell below 9% to 8.9%, the lowest level since February 9. Survey evidence suggests that the decline will continue. P.

6 Wednesday, 8 November 7 Euro zone Industrial Production Euro zone Retail Sales -,,,,, Industrial Production Y/Y Industry is doing well in EMU. It made a nice contribution to GDP growth in the second quarter and the longer-term trend is looking healthy, particularly thanks to Germany. Series EMU retail sales rose by.7% M/M and.7% Y/Y in September, erasing the August dip and beating consensus expectations. It confirms the solid domestic growth and suggests a continuation in Q. Positive Surprise,, Negative Surprise -, - -, Surprise index: measures the difference (in standard deviations) between the (median) Bloomberg consensus and the actual outcome of EMU economic data. Euro zone economic data remained strong and mostly beat the expectations once more. P. 6

7 Wednesday, 8 November 7 US 6 US GDP (Q/Q Annualized - contribution to growth) 6, US ISM Manufacturing - Services 6 7, -, 9 9-7, 8 Personal Consumption Fixed Investments Change in inventories Net Exports Government Consumption US GDP Q/Q Annualized ISM non-manufacturing (Left Axis) ISM Manufacturing (Left Axis) NFIB Small Business Optimism (Right Axis) The US economy grew a stronger-than-expected % Q/Qa in Q, matching Q s.% Q/Qa. The composition was worse though as personal consumption slowed and inventories rose. However, strong investment and exports were positives. US manufacturing ISM business sentiment eased slightly to 8.7 in October from a very high 6.8 in September. The Nonmanufacturing ISM surprised though as it rose to 6. in October from an already very high 9.8 previously US Inflation,,,, -, - US Unemployment 6,7,,,7,, - Manufacturing ISM - prices paid index (Left Scale) US CPI Y/Y (Right Scale) US Core CPI Y/Y (Right Scale) Change in private payrolls (Left Scale) US unemployment rate (Right Scale) US headline inflation rose to.% Y/Y in September from.9% Y/Y in August, while the core reading stabilized at.7% Y/Y for the fifth month in a row. Following a decline of inflation in the first half of the year, inflation has bottomed. A rise in core inflation would please the Fed. October payrolls rebounded (6K) and the unemployment rate fell further to.%, but earnings disappointed (flat M/M). The labour market gradually becomes hot-red, but the absence of faster wage growth is puzzling. The pace of 8 rate hikes will depend on the pace of increase of inflation. P. 7

8 Wednesday, 8 November 7 US Production US Retail Sales,,, -, - 6 US Manufacturing Production Y/Y Industrial production rebounded modestly in September (.% M/M) following a steep drop in August (-.7% M/M). On a yearly basis, production stabilized at %. US retail sales increased sharply in September (.6% M/M) on the back of stronger car and gasoline sales. However also core sales did well, rising.% M/M, after a modest.% M/M increase in August. The fundamentals for consumption remain positive. We expect strong readings in the months ahead.. Surprise index: measures the difference (in standard deviations) between the (median) Bloomberg consensus and the actual outcome of US economic data. US economic data: Positive surprises outnumbered negative ones. P. 8

9 Wednesday, 8 November 7 Contacts Brussels Research (KBC) Global Sales Force Piet Lammens Brussels Peter Wuyts + 7 Corporate Desk Mathias van der Jeugt Institutional Desk France Dublin Research London Austin Hughes Singapore +6 Shawn Britton Prague Research (CSOB) Jan Cermak Prague + 6 Jan Bures Petr Baca Bratislava Research (CSOB) Marek Gabris Bratislava Budapest Research David Nemeth Budapest ALL OUR REPORTS ARE AVAILABLE VIA OUR KBC RESEARCH APP (iphone, ipad, Android) This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice. P. 9