Currencies: Dollar jumps on strong US data, higher US yields and hawkish Powell
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- Harry Bishop
- 5 years ago
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1 Rates: Haemorrhage on bond markets US Treasuries were hit by a quadruple whammy yesterday. More extremely strong US eco data turned out to be the straw that broke the camel s back. Add higher oil prices, technical yield breaks at the long end of the US yield curve and a hawkish Fed governor Powell and you have a recipe for disaster for core bonds. We expect the repositioning to continue. Currencies: Dollar jumps on strong US data, higher US yields and hawkish Powell Yesterday morning, it looked that the euro would get some respite as tension on Italy eased a bit. However, at the end of the day, dollar strength was the name of the game. Strong US eco data and Fed s Powell signaling more policy tightening pushed EUR/USD below 1.15 support. The dollar is again in the drivers seat. Calendar Headlines US equity markets gained on Wednesday with all major indices closing in green, despite losing ground in final trading hours on higher yields. Asian markets and US equity futures trade in negative territory this morning. US Treasuries fell hard after strong US eco data and Fed chairman Powell saying he was very happy with the remarkably positive US economy. Mid-and longterm US yields broke through important resistance levels. S&P Eurostoxx 50 Nikkei Oil CRB Gold 2 yr US 10 yr US 2yr DE 10 yr DE EUR/USD USD/JPY EUR/GBP Ireland has expressed its support for UK PM May s plan for an all-uk customs union with the EU, to avoid a hard border in Ireland in case of no deal. Although Barnier already rejected, the Irish support is boosting hope. Russia and Saudi Arabia struck a private deal in September to raise oil output to cool down rising price and informed the US about it. The deal underlines how both countries are deciding oil output bilaterally, instead of consulting OPEC. US Secretary of State Mike Pompeo is optimistic that his meeting in North-Korea this weekend would bring progress toward a new and second summit between US President Trump and his North Korean counterpart Kim Jong Un. US Senate Majority Leader McConell has set up a procedural vote on Brett Kavanaugh s Supreme Court nomination. If this procedural vote succeeds, Kavanaugh could be confirmed as Supreme Court judge this weekend. Today s eco calendar is poorly filled. In the US we have Initial Jobless Claims. For the EMU we have no eco data, but ECB s Nowotny, Hansson and Nouy speak. Spain and France tap the bond market. P. 1
2 Rates Thursday, 04 October 2018 Haemorrhage on (US) bond markets US yield -1d 2 2,87 0,06 5 3,08 0, ,18 0, ,38 0,12 DE yield -1d 2-0,53 0,03 5-0,09 0, ,48 0, ,09 0,03 Global core bonds crashed yesterday with US Treasuries underperforming German Bunds. The US Note future took a quadruple whammy. An exceptionally strong US non-manufacturing ISM followed on the heels of a good ADP employment report and delivered the first hit. A new rally in oil prices, taking Brent crude from $84.5/barrel to $86.5/barrel, added downward pressure on core bonds. Key technical breaks at the long end of the US yield curve (10-yr: 3.12%; 30-yr: 3.26%) accelerated the selling. Fed governor Powell landed the final blow in a very optimistic speech on the US economy. The expansion can continue for quite some time, wages are gradually increasing, the Fed is still a long way from neutral rates and might in the end go past neutral settings. Traded volumes were very high yesterday, adding to the importance of technical breaks. The US yield curve bear steepened with yields 6.1 bps (2-yr) to 11.9 bps (10-yr & 30-yr) higher. The 2- and 5-yr yield reached the highest levels since 2008, the 10-yr yield since mid-2011 and the 30-yr yield since mid The US 10-yr real rate moved above 1% for the first time since March German yields added 3 bps (2-yr) to 5.3 bps (10-yr). Italy outperformed on peripheral bond markets (-19 bps) after Italian PM Conte indicated to lower the draft budget deficit for 2020 and 2021 to 2.1% of GDP and 1.8% of GDP respectively (coming from 2.4%). We don t think that this is sufficient to bridge the divide with the EU and won t buy into any short term BTP rally. Asian stock markets and US equity futures took a scare from the significant rise in global yields. Japan outperforms on the back of a weaker yen. The US Note future tumbles further. We expect a significantly lower opening for the Bund. Today s eco calendar only contains US weekly jobless claims, Spanish/French supply and speeches by some ECB members (Hansson, Nouy, Nowotny). Moves on bond markets will be key. We don t think that sell-off/repositioning is already over. Peripheral spreads will probably be effected as well (widening). Next resistance levels in the US 10-yr yield are 3.32% and 3.79% which are the 50% and 62% retracement levels from the decline. The German 10- yr yield is expected to settle back above the 0.50% mark, opening the way towards 0.80%. Af US 10-yr yield (LT): end of 30-yr downtrend?! US 10-yr yield (YTD): breaks above key technical support P. 2
3 Currencies US data, US yields and Powell propel the dollar. R2 1,2155-1d R1 1,1996 EUR/USD 1,1478-0,0070 S1 1,1510 S2 1,1448 R2 0,91-1d R1 0,9052 EUR/GBP 0,8870-0,0028 S1 0,8628 S2 0,8548 Yesterday, EUR/USD showed some interesting intraday swings. The pair spiked early in the session driven by an Italian concession to limit the budget deficit (2% in 2021), but the move couldn t be sustained even as there was no additional negative news on Italy. During the day, the dollar gained momentum. The ADP labour report was strong. The US non-manufacturing ISM reached a cycle high and oil prices started a new up-leg after the US inventory data. US yields jumped above key technical levels, supporting the dollar. Last but not least, in a speech late in the day, Fed s Powell confirmed its optimistic view on the economy and said that policy rate could go past neutral. The Powell comments pushed EUR/USD beyond the 1.15 support, closing at USD/JPY finally cleared the 114 mark to close the day at Overnight, most Asian equity markets are hurt by the rise in (US) yields and by the stronger dollar, with Japan and Australia the exception to the rule. Several EM currencies remain under pressure. EUR/USD hovers in the area. USD/JPY maintains yesterday s gain, but a potential risk-off context hampers a further decline of the yen. Today, the eco calendar only contains second tier eco data including the US jobless claims. Markets will ponder the meaning of the overnight movements and look forward to tomorrow s US payrolls report. Yesterday, it looked that easing tensions on Italy might give the euro some breathing space. However, at the end of the day, dollar strength was the name of the game. The EUR/USD breaking below 1.15 opens the way to the 1.13 area (2018 low). If the rise in yields would trigger a risk-off move, it will probably also favour the dollar over the euro. We also keep an eye at the impact of higher yields on intra-emu spreads! A widening could complicate the picture for European markets. So, for now there is no reason to try to catch the falling EUR/USD knife. Yesterday, the focus for sterling trading was on PM May s speech at the Conservative Party meeting May focused on domestic issues. Her analysis on Brexit remained at a general level but implicitly, she maintained the Chequers approach. EUR/GBP decline below the 0.89 level, but we assume it was mainly EUR/USD driven. Today, there are few UK data. Markets will look for signs of progress in the negotiations as the political noise of the Conservative party meeting is behind us. We keep a neutral bias on sterling in a day-to-day perspective. EUR/USD: dollar jumps higher on strong US eco data and as Powell signals further tightening EUR/GBP: sterling gains slightly ground after PM s speech, but global conditions dominate trading P. 3
4 Calendar Thursday, 4 October Consensus Previous US 13:30 Challenger Job Cuts YoY (Sep) % 14:30 Initial Jobless Claims 215k 214k 14:30 Continuing Claims 1665k 1661k 16:00 Durable Goods Orders (Aug F) 4.5% 4.5% Events 08:20 ECB s Hansson speaks on 2019 outlook for Estionia and euro area 11:30 ECB's Nouy Speaks at Conference in Vienna 13:15 BIS General Manager Carstens Speaks in Zurich 15:30 ECB's Nowotny Speaks at Conference in Vienna 10:00 Bank of Finland Press Conference on Monetary Policy 10:30 Spain to Sell Bonds 10:50 France to Sell Bonds 15:15 Fed's Quarles Speaks About Trends in Community Banks 10-year Close -1d 2-year Close -1d Stocks Close -1d US 3,18 0,12 US 2,87 0,06 DOW 26828,39 54,45 DE 0,48 0,05 DE -0,53 0,03 NASDAQ 8025,085 25,54 BE 0,84 0,03 BE -0,44 0,03 NIKKEI 23975,62-135,34 UK 1,58 0,05 UK 0,84 0,04 DAX 12287,58 0,00 JP 0,16 0,02 JP -0,11 0,01 DJ euro ,48 16,49 IRS EUR USD GBP EUR -1d -2d USD -1d -2d 3y 0,08 3,12 1,28 Eonia -0,3650 0,0000 5y 0,43 3,16 1,44 Euribor-1-0,3710 0,0000 Libor-1 2,2739 0, y 1,01 3,23 1,67 Euribor-3-0,3180 0,0000 Libor-3 2,4075 0,0000 Euribor-6-0,2670 0,0010 Libor-6 2,6070 0,0000 Currencies Close -1d Currencies Close -1d Commodities Close -1d EUR/USD 1,1478-0,0070 EUR/JPY 131,46 0,23 CRB 201,23 1,26 USD/JPY 114,53 0,88 EUR/GBP 0,8870-0,0028 Gold 1202,90-4,10 GBP/USD 1,294-0,0039 EUR/CHF 1,1390 0,0027 Brent 86,29 1,49 AUD/USD 0,7103-0,0085 EUR/SEK 10,3933-0,0088 USD/CAD 1,2868 0,0045 EUR/NOK 9,4442 0,0051 P. 4
5 If you no longer wish to receive this mail, please contact us: to unsubscribe Contacts Brussels Research (KBC) Global Sales Force Mathias Van der Jeugt Corporate Desk(Brussels) Peter Wuyts Institutional Desk(Brussels) Mathias Janssens CBC Desk (Brussels) Dieter Lapeire France Dublin Research London Austin Hughes Singapore Shawn Britton Prague Research (CSOB) Prague Jan Cermak Jan Bures 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 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. 5
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Thursday, February 8 Markets Rates,, -, - Policy Rates,7,,,7,, -, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M Main central banks kept policy rates unchanged at the start of
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Rates: US political uncertainty takes the upper hand The bar to beat today s US eco data isn t that high. However, we don t think that investors are willing to set up big new short positions in core bonds
More informationMarkets. Rates. Wednesday, 12 September 2018
Markets Wednesday, September 8 Rates,,, -, - Policy Rates,,, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M At the latest meetings, both the Fed and ECB held rates stable. The
More informationHeadlines. Friday, 24 February Rates: Core bond sentiment remains positive. Currencies: USD softens as markets ponder fiscal stimulus.
Rates: Core bond sentiment remains positive Core bond trading will remain sentiment-driven and technical in nature. End-of-month buying could come into play. The US Note future might be gearing up for
More informationHeadlines. Thursday, 25 October Rates: Carnage on US stock markets. Currencies: Dollar profits only modestly from global risk-off.
Rates: Carnage on US stock markets The stock market sell-off remained the key trading theme with US indices this time leading the way lower, closing 2.4% to 4.4% lower. Core bonds profit, but the magnitude
More informationCurrencies: Euro in pole-position. Will US data be strong enough to save the dollar?
Wednesday, 15 November 2017 Rates: Positive bias core bonds European stock markets remain fragile and oil prices could be prone to a more pronounced downward correction. Both are supportive for core bonds
More informationCurrencies: dollar losing marginally ground as Fed rate hike expectations ease further
Rates: More consolidation ahead? Yesterday, core bonds couldn t really gain on weak US eco data, suggesting that sentiment is still fragile even as chances on a September rate hike fell to below 20%. Today
More informationMarkets. Rates. Wednesday, 08 November 2017
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
More informationBrent oil is holding under $45/ barrel after yet another decline during US trading hours yesterday.
Thursday, 22 June 2017 Rates: Core bonds remain resilient, partly because of oil sell-off Risk sentiment and oil prices could guide global trading. Core bonds can profit in a daily perspective if oil extends
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. Thursday, 20 April Rates: Working off overbought conditions. Currencies: dollar still going nowhere. Calendar
Rates: Working off overbought conditions Today s eco calendar contains US weekly jobless claims, Philly Fed business outlook and EMU consumer confidence. Data aren t expected to inspire trading, but a
More informationCurrencies: Dollar maintains benefit of the doubt ahead of Powell speech
Rates: Downward intraday bias for core bonds Improved risk sentiment might weigh on core bonds. Italian media suggest that the EC is willing to accept a 2% Italian deficit for next year. This seems negotiable
More informationMarkets. Rates. Thursday, 10 November 2016
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
More informationRates: Gradually moving towards upper bound of sideways ranges
Rates: Gradually moving towards upper bound of sideways ranges Thursday, 30 August 2018 The US and German 10-yr yields continue their journey higher within established sideways trading ranges, respectively
More informationCurrencies: USD gains only modestly after approval of Senate tax bill
Monday, 04 December 2017 Rates: US political developments weigh on US Treasuries The US Note future loses ground this morning after the successful US Senate tax vote and the erroneous Flynn report. We
More informationHeadlines. Friday, 24 November Rates: Range bound trading going into the weekend? Currencies: EUR/USD holds within reach of 1.
Rates: Range bound trading going into the weekend? Traded volumes are expected to remain low today with US trading desks thinly staffed on Black Friday. A strong German IFO and progress in German formation
More informationCurrencies: Payrolls to decide on next directional move of the dollar
Rates: Bar for payrolls too high after the intense sell-off? The sell off in US Treasuries accelerated this week and the bar for today s payrolls is high (200k consensus, decline in unemployment rate and
More informationHeadlines. Monday, 13 November Rates: Side-lined ahead of central bankers and US eco data?
Rates: Side-lined ahead of central bankers and US eco data? Today s eco calendar remains uninspiring. We expect trading to be sentiment-driven and technical in nature. The downward equity correction hasn
More informationHeadlines. Tuesday, 04 July Rates: Geopolitical tensions to give bonds some respite? Currencies: Risk-off to set the tone for FX trading?
Rates: Geopolitical tensions to give bonds some respite? Strong US ISM aborted a sluggish corrective upturn during the US session with US Treasuries now underperforming Bunds. Geopolitical tensions may
More informationCurrencies: ECB and Comey hearing to decide on nest USD move?
Rates: Downward potential Bunds on ECB meeting? Bunds gained significant ground in the run-up to today s ECB meeting, suggesting that the market reaction could be asymmetric with lower Bunds (higher rates)
More informationHeadlines. Tuesday, 03 January Rates: Can stronger ISM already trigger new selling pressure?
Rates: Can stronger ISM already trigger new selling pressure? The first real trading session of the year features the US manufacturing ISM and German inflation data. Risks for the ISM are on the upside
More informationCurrencies: Dollar struggles, but EUR/USD doesn t set new correction top
Monday, 17 July 2017 Rates: Wait-and-see ahead of Thursday s ECB? Today s thin eco calendar probably won t impact trading. Q2 earnings reports could influence markets via risk sentiment. Overall, we expect
More informationMarkets. Rates. Tuesday, 16 October 2018
Markets Tuesday, 6 October 8 Rates,,, -, - Policy Rates,,, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M At its September meeting, the Fed raised rates with bps, dropped the reference
More informationCurrencies: Slightly positive yet fragile risk environment to support euro?
Rates: Risk sentiment remains very fragile Market tensions finally eased somewhat on bond markets yesterday, but this morning Asian trading shows that risk sentiment is still very fragile. ECB and Fed
More informationCurrencies: Key US data to decide on next directional USD move
Friday, 14 July 2017 Rates: US inflation data key with Fed comments in mind US inflation data will probably be determining for today s trading session. Recent warnings by several Fed governors suggest
More informationHeadlines. Monday, 09 April Rates: Consolidation ahead? Currencies: Soft US payrolls block tentative USD rebound. Calendar
Rates: Consolidation ahead? Risk sentiment improved overnight as US officials softened trade rhetoric again after last week s hawkish opening bets. More signs of North Korean willingness to de-nuclearize
More informationHeadlines. Thursday, 13 July Rates: Counting down to tomorrow s US eco data. Currencies: Dollar stays soft post-yellen.
Rates: Counting down to tomorrow s US eco data Today s eco calendar won t inspire trading. In light of most recent events (Yellen s Testimony), we expect that core bonds could correct somewhat higher without
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