Markets. Rates. Tuesday, 10 April 2018
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- Clara Ball
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1 Markets Tuesday, April 8 Rates,, -, - Policy Rates,,, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M The US central bank continued its tightening cycle, lifting rates by bps to.%.7%. The median FOMC forecast now takes into account additional hike in both 9 and compared to the December 7 forecast. The uptrend in the US M libor rate accelerated with some investors discounting the possibility of rate hikes this year. Trump s fiscal policy which will result in rising deficits probably added a premium as well. Swap Rates (%),,, -, EURIBOR M,,, -, -, -, -, EUR Yr Swap Rate US Yr Swap Rate January ECB Meeting (/) Actual (9/) March ECB Meeting (8/) The US yr swap rate hovered near the cycle high. Fed chairman s Powell upbeat assessment of the economic outlook was countered by uncertainty surrounding the developing US/Chinese trade conflict. European swap rates corrected gradually lower as economic data disappointed. The Euribor M strip curve bull flattened with investors pulling back from early monetary policy normalisation bets. Rumours suggest tapering APP towards the end of 8 with a first hike as soon as mid 9. Markets don t buy into that scenario yet, without any signs of inflationary pressures P.
2 Tuesday, April 8,7 Euro Swap Curve Intra-EMU Yield Spreads (Yr),,,,7,,, -, //8 9//8 9//8 Spain Italy Belgium France EMU swap curve bull flattens. Risk aversion on stock markets, disappointing EMU eco data and the ECB s snail pace towards normalisation are at play. Italian BTP s hardly suffer from the indecisive outcome of the Italian general elections, but the gap with Spain widens. Are investors gradually paying more attention to underlying fundaments as the end of APP nears? Currencies EUR/USD EUR/GBP,,,,,,,9,9,8,8,7,7,6 EUR/USD stabilized in the narrow range roughly between. and.. FX markets are rather unmoved by the further divergence in US/EMU monetary policy/eco data and the developing trade conflict between the US and China EUR/GBP retested the bottom of the sideways range around.87 as investors discount a May BoE rate hike. The transition deal reached between the UK and the EU showed no progress on key issues like the Irish border. P.
3 Tuesday, April 8 USD/JPY EUR/CZK 9 8 7, 7 6, 6, USD/JPY: Japanese yen profited from new correction lower on US stock markets caused by hawkish trade rhetoric. Signs of bottoming out as the US and China seem to progress to the negotiation table after placing opening bets? Czech koruna rally slowed after the January rate hike. Further tightening can be expected later this year. However, a pause in the rate hike cycle might cause some consolidation on the CZK rally. EUR/PLN,6,,,,,,9 EUR/HUF 9 The Polish zloty lost further ground this month. The Polish government remains on collision course with the EU and NBP governor Glapinski suggested that the central bank might even keep rates unchanged into! EUR/HUF: The forint trades stable between and already for a remarkable amount of time. The MNB continues pursuing an extremely easy policy despite strong underlying growth and inflation momentum. P.
4 Tuesday, April 8 Others Brent Crude Oil (Future) - ($/barrel) Gold (Future) - $/ounce 7 6 Brent oil retested the top north of $7/barrel reached in January. The gold price hovers sideways this year between $ and $/ounce, captured between a bottoming out process of the dollar and the return of volatility on US stock markets. CRB Commodity Index 8 Euro Stoxx Global commodity prices initially reacted negatively on actual and proposed import tariffs by the US and China, fearing a setback in global growth momentum. Equities suffered a second setback this year caused by the developing trade war. The EuroStoxx 6 bounced of key support (mid 7 low and 8% retracement level around 6). P.
5 Tuesday, April 8 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 EMU growth reached.6% Q/Q and.7% Y/Y in Q 7. The 7 growth rate was the strongest since 7 and EMU growth is expected to remain above trend in coming years. However, Q 8 indicators suggest that we ve reached a peak at the end of last year. The manufacturing PMI recorded a third straight decline, suggesting a trend change. The services PMI dropped for two months running. A natural roll over from extremely high levels and fears about negative consequences of a global trade war are at play. PMI s (>) still point to decent growth though. Euro zone Inflation Euro zone Unemployment, 9, , Services Confidence - Employment Expectations(Left axis) Industrial Confidence - Employment Expectations (Left axis) CPI - Y/Y (Left axis) Core CPI - Y/Y (Left axis) EC Industrial confidence - selling price expectations (Right axis) Unemployment Rate (Right axis) EMU headline inflation increased to.% Y/Y in March, but core inflation printed unchanged at.% Y/Y. The inflation data confirm the ECB s assessment that there is still work to do to bring inflation sustainably to the % target. The euro zone unemployment rate declined further to 8.%, the lowest level since January 9. Survey evidence suggests that the decline will continue. P.
6 Tuesday, April 8 Euro zone Industrial Production Euro zone Retail Sales 6 -,,,,, Industrial Production Y/Y Retail Sales Y/Y Industrial production slowed more than expected in January. Monthly production data are volatile. National data suggest another dismal performance in February with eg German production.6% lower on a monthly basis. Weather circumstances probably exaggerated the drop. Retail sales stabilized at.% M/M and.8% Y/Y in February after a very volatile H 7. 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 mostly disappointed over the past month with both soft and hard data suggesting that EMU growth peaked in Q 7. P. 6
7 Tuesday, April 8 US US GDP (Q/Q Annualized - contribution to growth) 6, US ISM Manufacturing - Services 6 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 by.9% Q/Qa in Q, slightly below Q s.% Q/Qa. Personal consumption and investments made a strong positive contribution while net exports dragged. US Business sentiment indicators remain at solid levels, unlike the setback in EMU/global PMI s. Possible nervousness rising from the trade conflict is balanced by the positive impact from US tax reforms 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 (.% Y/Y) trended further north of.%. Core inflation (.8% Y/Y) stabilized as expected. Base effects suggest a further rise starting in Q 8 and warranting an extension of the Fed s normalisation process. March payrolls disappointed ( k). The unemployment rate stabilized at a multiyear low (.%). Wage growth was the positive item of the report, matching the expected.% M/M and.7% Y/Y increase. P. 7
8 Tuesday, April 8 US Production US Retail Sales US factory production reaccelerated in February (.% M/M) confirming the ongoing strong momentum in the US manufacturing/production sector. US retail sales disappointed again in February (.%) marking the third consecutive negative reading for the nominal headline series. The control group series was less negative, but private consumption might be a drag on Q GDP growth.. 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: Economic data printed mixed compared to consensus though the most recent ones (right side of axis) start disappointing P. 8
9 Tuesday, April 8 Contacts Brussels Research (KBC) Global Sales Force Mathias Van der Jeugt Brussels Peter Wuyts + 7 Corporate Desk 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
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Rates: Will the sell-off take a pause or will strong US data hit especially US bonds? The US ISM could be stronger than expected today, but traders might be hesitant to react ahead of tomorrow s holiday.
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Rates: ADP employment more important than usual? US yield resistances remain under severe test (2y: 1.3%, 5y: 2%; 10y 2.55%; 30y 3.13%), with even small breaks at the front end of the curve, suggesting
More informationMonday, 02 October 2017 Headlines US equities had a good run Friday, Asian stocks trade slightly positive too, Catalan separatist leaders
Monday, 02 October 2017 Rates: Catalan headache for Spanish bonds? European markets showed a lot of resilience in the run-up to the Catalan secession vote. Madrid s impertinent behaviour and Catalan President
More informationCurrencies: Dollar shows no clear trend, but USD/JPY nears key support
Rates: US 10-yr yield closing in on 2.3% support Today s eco calendar won t inspire trading, suggesting sentiment-driven action. If yesterday s risk aversion persists, the US 10-yr yield could eventually
More informationRates: Further underperformance of US Treasuries with key US eco data?
Monday, 03 April 2017 Rates: Further underperformance of US Treasuries with key US eco data? The US manufacturing ISM will probably key in today s trading session. We put risks on the upside of expectations,
More informationHeadlines. Thursday, 10 January Rates: Easy part of risk rebound over? Currencies: Dollar decline accelerates. EUR/USD clears 1.15 resistance.
Rates: Easy part of risk rebound over? FOMC Minutes and speeches by more Fed governors cement the US central bank s new narrative of patience in the tightening cycle. This message should be by and large
More informationHeadlines. Tuesday, 05 March Rates: First 10y Greek bond sale in almost a decade. Currencies: EUR/USD correction off 1.14 resistance continues
Rates: First 10y Greek bond sale in almost a decade Yesterday s market correlations were very loose amid an empty eco/event calendar. The US non-manufacturing ISM spices trading today. We expect a strong,
More informationHeadlines. Friday, 17 November Rates: Cautiousness ahead of the weekend? Currencies: Dollar fails to extend rebound. Calendar.
Internal Rates: Cautiousness ahead of the weekend? US Treasuries outperform this morning as US political risk showed another dimension. Risk sentiment will to continue to play a key role today. The proof
More informationCurrencies: US stays in the defensive as markets ponder Fed rate hike intentions
Rates: US yield support holds amid sell-off on stock markets Tuesday, 20 November 2018 US Treasuries ended near opening levels, finding a balance between technical considerations (key US yield support)
More informationRates: Huge sell-off on US stock markets triggers short squeeze in bonds
Tuesday, 06 February 2018 Rates: Huge sell-off on US stock markets triggers short squeeze in bonds The sell-off on US stock markets accelerated yesterday evening (-4% and more) and caused a huge short
More informationHeadlines. Thursday, 23 November Rates: Solely EMU to watch out for. Currencies: Dollar nears/tests important support levels.
Thursday, 23 November 2017 Rates: Solely EMU to watch out for Today s eco calendar focuses on EMU with US markets closed for Thanksgiving. EMU PMI s are expected to remain at very strong levels, which
More informationRates: Upward bias US Treasuries, outperforming German Bunds?
Wednesday, 03 May 2017 Rates: Upward bias US Treasuries, outperforming German Bunds? Risks for US eco data are on the downside of expectations. Overnight future trading suggests that US equity markets
More informationCurrencies: Sentiment data (ZEW) to ease euro downside pressure?
Rates: Looking for clues from the ECB US investors return after the long weekend, but the US eco calendar is razor-thin. EMU investors look for signs of improvement in the forward-looking German ZEW expectations
More informationCurrencies: Will payrolls be strong enough to inspire further USD gains?
Rates: Payrolls unable to give US Treasuries firm direction? The outcome of the payrolls is highly uncertain. We see risks for a strong report. However, a Treasury sell-off won t trigger a relevant break
More informationHeadlines. Wednesday, 13 September Rates: Can US eco data start a 2nd downleg in US T s this week?
Rates: Can US eco data start a 2nd downleg in US T s this week? Core bonds corrected lower since Friday afternoon as risk sentiment improved with new closing highs for main US equity indices. Technically,
More informationHeadlines. Tuesday, 02 October Rates: Risk aversion to dominate trading? Currencies: Italy-EMU budget dispute weighs on euro.
Rates: Risk aversion to dominate trading? Italian FM Tria returned from yesterday s Eurogroup with work to do on the country s draft budget proposal which is unacceptable to Europe. Italian populist party
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