Markets. Rates. Wednesday, 08 February 2017

Transcription

1 Markets Rates 6 - Policy Rates,,8,6,, -, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M No policy changes at the start of 7. The Fed holds its strategy of tightening policy at a gradual pace and didn t hint at a March rate hike. ECB president Draghi defended the ultraeasy policy because of subdued underlying inflation pressure. German hawks think it s time to normalize. US Libor m rate stabilized above % as the Fed doesn t seem to be in a rush to tighten policy further. Euribor m flatlines around.% with markets only discounting a first (deposit) rate hike by the end of 8. Swap Rates (%),,, -, EURIBOR M,, -, -, -, -, EUR Yr Swap Rate US Yr Swap Rate January ECB Meeting (9/) December ECB meeting (8/) Today (/) US and EMU yr swap rates corrected off the highs reached in the first phase of the reflation trade. More details on fiscal stimulus needed to initiate next leg higher? The Euriborm forward curve nearly unchanged though some steepening visible as the EMU growth and inflation outlook improves. P.

2 , Euro Swap Curve Intra-EMU Yield Spreads (Yr),,,7,,, -, //7 6//7 6//6 Spain Italy Belgium France Steepening yield curve as PMI holds at good levels, inflation rises to.8% Y/Y for the first time since early, the unemployment rate dropped to its lowest level in 7 years and growth accelerated in Q to.% Q/Q Peripheral spreads widened with Greece, Italy and France underperforming. Greece faces a July redemption, but lacks funds while the Troika doesn t agree on the rd bailout framework. Italy s financial sector remains vulnerable and early elections loom. Outsider Le Pen worries French investors. Currencies EUR/USD EUR/GBP,,,,,,,,,9,88,8,8,76,7,68 The dollar corrected lower at the start of 7 as interest differentials between the US and Europe narrowed. Rising uncertainty on the impact of the Trump policy might have been a slightly USD negative, too. Sterling declined in the first half of January as the government signalled that it opted for a clean Brexit. Sterling enjoyed a temporary short squeeze after May s Brexit speech, but the rebound soon ran into resistance. P.

3 USD/JPY EUR/NOK 9 9,7 9, 9, 9 8,7 8, 8, 8 USD/JPY: The overall correction of the dollar, declining core US/European bond yields and a softening of the global equity rally triggered profit taking in USD/JPY. The pair nears key support in the.6/ area. EUR/NOK: The Norwegian krone extended its gradual uptrend in January. Positive effects from higher oil prices on the economy support the krone. EUR/PLN,6,,,,,,9 EUR/HUF 9 The zloty extended its rebound that started early December. Polish growth slowed in 6, but there are tentative signs that a bottom might be in place. A NBP rate hike isn t around the corner, but markets ponder the NBP s options. Strong domestic fundamentals supported the forint in 6 despite absolute low yields. However, the NBH continues to speak soft and keeps monetary policy ultra easy preventing further forint gains. P.

4 Others Brent Crude Oil (Future) - ($/barrel) Gold (Future) - $/ounce Brent oil moved sharply higher from $6/barrel to a peak of $8/barrel early January. It now trades sideways in a $ to $8 trading range Gold sold off after the Trump s election, as uncertainty diminished, but tries to recover since the end of December, rising from a $7/ounce low to $ high. Some investors look for safety because of the unpredictability of president Trump and the European election season. 7 7 CRB Commodity Index 8 6 Euro Stoxx 6 The CRB commodity index hesitated after Trump s election, but is now at the upper boundary of a long term sideways range. Better eco data and reflation expectations suggest that the bear market in commodities might be over. European shares rallied higher on the Trump wave of optimism till the end of 6. Since the start of the year cautious sideways trading dominated. The main US equity indices reach new record highs, but couldn t really start an new up leg. P.

5 Economic Overview Eurozone Euro zone GDP (Q/Q contribution to growth) Euro zone PMI Manufacturing (blue) & Services (red) 6,, -, - -, government household gross fixed capital formation change in inventories exports imports GDP Q/Q Euro zone economic growth accelerated in Q to.% Q/Q and.8% Y/Y from.% Q/Q and.7% Y/Y in Q. Growth details aren t released yet. Growth in the euro zone services sector (red) stabilized in January for the third month in a row at a decent.7, while sentiment in the manufacturing sector continued to improve for a fifth month to a high.. This bodes well for Q growth that may match Q s performance. 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 steep uptrend in January as the drag from energy prices eases and food prices rise. Headline inflation rose from.% Y/Y to.8% Y/Y. Core inflation stabilized at.9% Y/Y. Business selling prices shoot higher suggesting that price increases will become broadbased Services Confidence - Employment Expectations(Left axis) Industrial Confidence - Employment Expectations (Left axis) Unemployment Rate (Right axis) The downtrend in the euro zone unemployment rate continued, as it dropped in December to 9.6% from a downwardly revised 9.7% in November, a cycle low. Survey evidence suggests that the decline can continue. P.

6 Euro zone Industrial Production Euro zone Retail Sales Industrial Production Y/Y Euro zone industrial production jumped in November to.% Y/Y from.8% Y/Y in October (monthly production was up.% M/M). The series is volatile, but we hope to see stronger production in 7. Retail Sales Y/Y EMU retail sales fell.% M/M in December after.6% M/M in November, unwinding an oversized.% M/M increase in October. On a yearly basis, sales slowed to.% from.%. Higher inflation will cap real disposable income, but higher employment and increased optimism may incite households to use their savings or borrow more. 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 mostly worse than consensus in the past month, as analysts adapted their attitude in the face of below expectation results in the previous period. P. 6

7 US 6 US GDP (Q/Q Annualized - contribution to growth) 6 US ISM 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 slowed in Q to.9% Q/Qa, due to a sharp decline in net exports, from.% Q/Qa in Q. Growth in personal consumption (.%) remains a strong contributor, but also investments and inventories were positives. US manufacturing (6) continued to rise in January while nonmanufacturing ISM (6.) stabilized at high level. The reports suggest good momentum in the economy at the start of 7. Prices paid (manuf.) rose to a high 69. New orders (6.) and employment (6.) were strong too. 7 US Inflation US Unemployment 8, 6 8 7, 7 6, 6 -,, 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 to.% Y/Y in December from.7% Y/Y in November, as the drag from energy prices eased. Headline inflation will rise further up in the coming month. Core inflation rose to.% Y/Y in December, up from.% Y/Y previously. In fact, core CPI stabilized throughout 6. The January payrolls report was strong. Net job growth increased by 7K versus 7K in December. The unemployment rate increased to.8% from.7% in December, as the participation rates rose. Wages disappointed though and increased only.% M/M to be up.% Y/Y. P. 7

8 US Production US Retail Sales,,,, -, US Manufacturing Production Y/Y US industrial production rose strongly in December (.8%Y/Y), but mainly due to utility output, as manufacturing output only rose by.% M/M. US retail sales rose a strong.6% M/M in December following a modest.% M/M in November. However, the strength was mainly in car and gasoline sales, as core sales were effectively flat. On a yearly basis, sales stabilized around %.. 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 showed almost as much upward than downward surprises in January/early February. P. 8

9 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 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