Markets. Rates. Thursday, 10 November 2016

Transcription

1 Thursday, November 6 Markets Rates 6 - Policy Rates,8,6,, -, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M While ECB and BOE are expected to keep rates unchanged for a longer period, the Fed might increase rates at the December meeting. Euribor rates stabilized over the past month. US Libor rates rose to a new cycle high due to new money market funds regulation and in anticipation of a December rate hike. Swap Rates (%) EURIBOR M,, -, -, -, -, -, EUR Yr Swap Rate US Yr Swap Rate September ECB meeting (8/9) October ECB Meeting (/) Today (9/) EUR and US yr swap rate: Bottoming out process as the end of the ECB easing cycle could be near while the Fed is expected to continue its tightening cycle, especially now that Trump will likely opt for a reflationary policy. The Euribor forward curve shifted significantly higher since the September meeting as the ECB seems no longer willing to ease monetary policy at whatever cost. In the meantime, QE tapering rumours are spreading. P.

2 Thursday, November 6, Euro Swap Curve Intra-EMU Yield Spreads (Yr),,7,,, , //6 //6 /9/6 Spain Italy Belgium France The European swap curve shifts higher and steepens as some investors position for ECB QE tapering after March 7. Italy continues to underperform Spain as uncertainty over the outcome of Renzi s referendum rises and as the Italian banking sector remains very fragile. Spain on the contrary has a new (minority government) and stronger economy Currencies EUR/USD EUR/GBP,,,,,,,,,9,88,8,8,76,7,68 The dollar gained traction as markets embraced the scenario of a December Fed rate hike. The dollar got another shot in the arm as markets repositioned for a US reflation trade after Trump s election victory. Sterling declined further on rising risks for a hard Brexit. Recently, sterling entered calmer waters on a court ruling asking for more Parliamentary involvement in Brexit and as the BoE abstained from further easing. P.

3 Thursday, November 6 USD/JPY EUR/SEK 9 9,7 9, 9, 9 8,7 Of late, USD/JPY was in the first place driven by interest rates/differentials rather than the risk on/risk off paradigm. The reflation trade propelled the cross rate beyond the /6 resistance area. EUR/SEK: the Swedish koruna remains in the defensive as the Riksbank sticks to aggressive monetary stimulation even as growth remains at lofty levels,, EUR/PLN EUR/HUF,,,,9 9 The zloty rebounded earlier this year as uncertainty on government involvement in the CB faded. EUR/PLN settled in a sideways pattern (./. area).the NBP probably won t ease policy anymore, but a rate hike isn t on the horizon yet. The forint was already better bid earlier this year as the MNB easing cycle halted. The currency was additionally supported by improving economic fundamentals. This improvement was illustrated by a credit rating upgrade. P.

4 Thursday, November 6 Others Brent Crude Oil (Future) - ($/barrel) Gold (Future) - $/ounce Renewed uncertainties about the preliminary OPEC agreement on production cuts pushed Bent again lower in the past month to about $6/barrel. Gold prices went higher in the run up to the US elections (to $9/ounce high) as uncertainty about the outcome grew. Gold declined in the days before the election as Clinton s chances rose. After Trump s victory, gold is back up on inflation expectations. 7 7 CRB Commodity Index 8 6 Euro Stoxx 6 The CRB commodity index extended its rebound in October, but corrected lower in early November. They stay in a wide bottoming out range, well off January s lows. European shares hovered sideways since early August. Election volatility was visible early November, but the rebound after election day keeps the index near the top of the sideways range. P.

5 Thursday, November 6 Economic Overview Eurozone Euro zone GDP (Q/Q contribution to growth) Euro zone PMI Manufacturing (blue) & Services (red),, -, - -, government household gross fixed capital formation change in inventories exports imports GDP Q/Q Euro zone economic growth stabilized at.% Q/Q and.6% Y/Y in Q. Details aren t available yet. The EU Commission recently lowered its 7 forecasts due to Brexit uncertainties and general weakness in international trade. Growth in the euro zone services sector (red) picked up gain in October (.8), while sentiment in the manufacturing sector improved for a second month to a decent level of.. This bodes well for Q growth, if confirmed in November. Euro zone Inflation Euro zone Unemployment,, - -, , - - CPI - Y/Y (Left axis) Core CPI - Y/Y (Left axis) EC Industrial confidence - selling price expectations (Right axis) EMU headline inflation extended its uptrend in October as the drag from energy prices eases. Headline inflation rose from.% Y/Y to.% Y/Y. Core inflation shows no signs of accelerating and stabilized at.8% Y/Y. Services Confidence - Employment Expectations(Left axis) Industrial Confidence - Employment Expectations (Left axis) Unemployment Rate (Right axis) The downtrend in the euro zone unemployment rate slowed, as it stabilized in September at %. Most survey data show labour market conditions continue to improve, suggesting that the unemployment rate will trend further down. P.

6 Thursday, November 6 Euro zone Industrial Production Euro zone Retail Sales Industrial Production Y/Y Euro zone industrial production showed a strong rebound in August, rising by.6% M/M. Annually, industrial production increased by.8%, after a few sluggish months. Retail Sales Y/Y Growth in euro zone retail sales stabilized in September at.% Y/Y. The August figure was revised up to.% Y/Y from a preliminary.6% Y/Y. The data suggest that consumer spending slowed somewhat 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 came out rather close to consensus in the past month, with the exception of business sentiments indicator which were stronger than expected. P. 6

7 Thursday, November 6 US 6 US GDP (Q/Q Annualized - contribution to growth) 6 US PMI Manufacturing - Services Personal Consumption Fixed Investments Change in inventories Net Exports Government Consumption US GDP Q/Q Annualized ISM non-manufacturing (Left Axis) NFIB Small Business Optimism (Right Axis) ISM Manufacturing (Left Axis) US economic growth picked up in the Q, to.9% Q/Qa from.% Q/Qa in Q. Growth in personal consumption remains a strong contributor to growth, but also net trade and inventories were positives. Only investment remains a small drag, likely due to election uncertainties. Following a dip in August, both the US manufacturing (.9) and non manufacturing ISM recovered. The latter fell in October to a still strong.8 after an unsustainable jump in September (7.). These results suggest ongoing solid, but no spectacular growth in Q. 9 US Inflation US Unemployment 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 picked up further from.% Y/Y in August to.% Y/Y in September, as the drag from energy prices is easing. That will push the headline rate further up in the coming months. Core inflation eased slightly from.% Y/Y to.% Y/Y, the same level as in July. The October payrolls report was very decent. Headline net job growth fell to 6K, following a sharply higher revised 9K in September. The unemployment rate dropped to.9% from %. There are first signs of accelerating wage growth as AHE rose by.% M/M and.8%y/y, the highest level since mid 9 P. 7

8 Thursday, November 6 US Production US Retail Sales,,,, -, US Manufacturing Production Y/Y US industrial production remained sluggish in October, but there are tentative signs of improvement in orders and survey data. US retail sales disappointed again in August, suggesting that growth in consumer spending might have slowed in the third quarter. A significant rebound is however expected for September.., Positive Surprise, -, - -, Surprise index: measures the difference (in standard deviations) between the (median) Bloomberg consensus and the actual outcome of US economic data. US economic data continued to show a mixed picture late in October and early November. There were however a few remarkable upward surprises in survey data, boding well for the coming months. P. 8

9 Thursday, November 6 Contacts Brussels Research (KBC) Global Sales Force Piet Lammens Brussels Peter Wuyts + 7 Corporate Desk Joke Mertens Institutional Desk Mathias van der Jeugt 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 ON 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