Currencies: US stays in the defensive as markets ponder Fed rate hike intentions
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1 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) and a tech-induced sell-off on US stock markets. Today s eco calendar suggests more meaningless intraday gyrations on core bond markets, caused by the same drivers. Currencies: US stays in the defensive as markets ponder Fed rate hike intentions Yesterday, a risk-off sentiment and a poor US NAHB indicator weighed further on the dollar. Today s eco calendar is thin. US housing data might have some more intraday impact than is usually the case. Sterling traders will look out for the BoE assessment/framework in different Brexit scenario s as Carney and Co will defend policy before a Parliamentary committee. Calendar Headlines US equities opened yesterday s session in deep red as all indices lost ground. Tech shares underperform (Nasdaq -3.03%) as Facebook, Apple and Amazon plunge. Asian stock markets continued the sell-off. China is underperforming. Rebels of UK PM May s Tory party seemed to have failed to collect the necessary 48 votes to call for a no-confidence vote, keeping May in place (for now). Today, she will visit Brussels to discuss the direction of future trade. 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 After Spain stated that it seeks more assurance on Gibraltar before it could back the Brexit deal, France suggested separate EU statements who set out the EU s red lines more clearly than in the current formal political declaration. Randal Quarles, a US Fed governor, will become the new chair of the Financial Stability Board for the first three years, followed by Klaas Knot, head of the Dutch Central Bank. Carney, BoE governor, steps down as FSB chair next month. US President Trump considers to restrain exports of advanced technologies, going from Artificial Intelligence to Robotics as they are essential to the national security of the US. Trump wants to protect American leadership in innovation. In the US, the NAHB Housing Market Index dropped to 60 in November, the lowest in more than two years and down from 68 in October and adding to signs of a slowdown in the US housing market. Markets expected a decrease to 67. Today s economic calendar is thin with US housing market data and German PPI. BoE s heavyweights Carney, Haldane and Saunders testify before UK parliament. ECB Weidmann,, Nowotny and Nouy speak. P. 1
2 Rates Tuesday, 20 November 2018 Technical levels hold amid dismal stock performance US yield -1d 2 2,79-0,01 5 2,87-0, ,06 0, ,32 0,00 DE yield -1d 2-0,58 0,00 5-0,23 0, ,37 0, ,05 0,01 Core bonds erased early technically-inspired losses yesterday during US dealings as an Apple-driven tech sell-off pulled US stock markets 1.5% (S&P, Dow) to 3% (Nasdaq) lower. The eco calendar was empty apart from a worrying drop in NAHB house market index, to the lowest level since September The index adds further evidence of a slowdown in the housing market. The US yield curve steepened with yield changes ranging between -1.2 bps (2-yr) and +0.5 bps (30-yr). US yields remain at important support levels across the curve (5-yr: 2.9%; 10-yr: 3.05%; 30-yr: 3.3%). NY Fed Dudley said that the Fed should stick to its gradual normalization process and wasn t as precise as his colleagues last week in pinpointing downside eco risks. He was rather neutral, indicating that the Fed should monitor incoming eco data. German yields increased by 0.2 bps (2-yr) to 1.3 bps (30-yr). 10-yr yield spread changes vs Germany closed nearly unchanged with Italy (+10 bps) underperforming. The Italian debt agency issued a new retail bond yesterday, but only sold 0.44bn at the first day of the offering yesterday. That s significantly below the 2bn sold at the first of the previous BTP Italia offering. Most Asian stock markets copy yesterday s dismal US performance. The US is rumoured to consider export controls on AI and other new tech, which adds to the gloom. The US Note future steadies, with key technical support levels in yields capping the upside without a strong new trigger. We expect a neutral opening for the Bund. Today s eco calendar remains razor thin with only US housing starts and building permits. We expect them to add to yesterday s evidence from the NAHB housing index. US trading is expected to remain subdued in this holiday shortened trading week with Thanksgiving on Thursday. Speeches by ECB Nowotny, Nouy and Weidmann are wildcards for trading. We look for clues on the possible launch of a new set of TLTRO s next year or to changes to the reinvestment framework. We don t expect any market-moving influence though, suggesting risk sentiment will set the tone for intraday gyrations on core bond markets. Key US technical levels offer strong support and are expected to hold. A German 10-yr yield holing in the lower part of the 0.3%-0.6% range US 10-yr yield tests important support (3.05%/3.07%) as Fed governors warn on slowing growth abroad P. 2
3 Currencies Fed doubts continue to weigh on USD R2 1,1815-1d R1 1,1621 EUR/USD 1,1454 0,0039 S1 1,1187 S2 1,1119 R2 0,8997-1d R1 0,894 EUR/GBP 0,8911 0,0015 S1 0,8700 S2 0,862 Markets still tried to find out yesterday whether the Fed might slow the pace of rate hikes as the policy rate is coming closer to a neutral level. These doubts weighed on the dollar last week and persisted yesterday. The NAHB housing index tumbled from 68 to 60 (67 expected). Is this another indication of a loss of momentum? US yields and USD declined further after the release. A risk-off sentiment, reinforced by selling in the tech sector, supported core bonds. In the current environment, a decline in US yields and tighter interest rate differentials between the US and Germany/Japan are a USD negative. The dollar doesn t profit from the risk-off context. EUR/USD jumped higher after the NAHB housing release and closed at USD/JPY finished at This morning, Asian equities join the decline from the US yesterday. The dollar remains in the defensive (DXY near 96.20; EUR/USD near ; USD/JPY ). Later today, US housing starts and permits might get some more attention than is usually the case after yesterday s NAHB release. Another negative surprise might reinforce market uncertainty on the room for further Fed rate hikes and weigh on the dollar. We had a neutral bias on EUR/USD of late.the USD clearly lost momentum as investors doubt whether the US economy remains strong enough to support 3 additional Fed rate hikes next year. We assume it s too early for a sustained market repositioning away from the USD. US data remain solid, interest rate differentials remain wide and the news from Europe remains mixed at best. We keep the working hypothesis that EUR/USD 1.15/ resistance won t give away anytime soon. That said some USD warning signs are starting to kick in. Yesterday, sterling remained in the defensive, but selling was less aggressive than at the end of last week. For now, UK PM May survived the storm and it looks that rebels in her party are not able to trigger a formal leadership vote right now. A difficult road is still ahead for May s Brexit plan, but for now, there is no further escalation. Today, the CBI order data will be published. Several BoE MPC members including BoE s Carney will defend the inflation report before Parliament. Politicians will ask the BoE to clarify its reaction function in case of different Brexit scenarios. We have the impression that the BoE is inclined to guide rates higher in several different scenarios. However, it is far from sure this will help sterling short-term. We stay cautious on sterling going into the Parliamentary vote expected early December. USD (trade-weighted): dollar rally running into resistance EUR/GBP: Brexit uncertainty continues to weigh on sterling. BoE unlikely to change fortunes for sterling P. 3
4 Calendar Tuesday, 20 November Consensus Previous US 14:30 Housing Starts Total/MoM (Oct) 1225k/1.8% 1201k/-5.3% 14:30 Building Permits Total/MoM (Oct) 1260k/-0.8% 1270kR/1.7%R UK 12:00 CBI Trends Total Orders :00 CBI Trends Selling Prices 10 Japan 08:00 Convenience Store Sales YoY (Oct) % Germany 08:00 PPI MoM/YoY (Oct) 0.3%/3.3% 0.5%/3.2% France 07:30 ILO Unemployment Rate (3Q) 9.2% 9.1% Belgium 15:00 Consumer Confidence Index (Nov) -- 1 Events 11:00 BOE's Carney, Haldane and Saunders Testify in London 16:00 Bundesbank President Weidmann Speaks in Frankfurt 10-year Close -1d 2-year Close -1d Stocks Close -1d US 3,06 0,00 US 2,79-0,01 DOW 25017,44-395,78 DE 0,37 0,01 DE -0,58 0,00 NASDAQ 7028, ,40 BE 0,84 0,02 BE -0,54 0,00 NIKKEI 21583,12-238,04 UK 1,38-0,03 UK 0,70-0,03 DAX 11244,54-96,46 JP 0,10 0,00 JP -0,14 0,00 DJ euro ,33-20,41 IRS EUR USD GBP EUR -1d -2d USD -1d -2d 3y 0,02 3,00 1,22 Eonia -0,3620 0,0000 5y 0,32 3,01 1,34 Euribor-1-0,3690 0,0000 Libor-1 2,3009 0, y 0,93 3,12 1,55 Euribor-3-0,3160 0,0000 Libor-3 2,6445 0,0000 Euribor-6-0,2570 0,0000 Libor-6 2,8626 0,0000 Currencies Close -1d Currencies Close -1d Commodities Close -1d EUR/USD 1,1454 0,0039 EUR/JPY 128,92 0,10 CRB 188,76 1,46 USD/JPY 112,55-0,28 EUR/GBP 0,8911 0,0015 Gold 1225,30 2,30 GBP/USD 1,2854 0,0020 EUR/CHF 1,1380-0,0036 Brent 66,79 0,03 AUD/USD 0,7294-0,0038 EUR/SEK 10,3112 0,0323 USD/CAD 1,3171 0,0023 EUR/NOK 9,7115 0,0757 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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Rates: Developments on trade scene trump US payrolls Development on the US trade scene could underpin demand for core bonds going into the weekend and overshadow today s payrolls report. US President Trump
More informationHeadlines. Wednesday, 13 December Rates: Corrective steepening, even if Fed holds scenario? Currencies: Fed to solidify USD downside protection
Wednesday, 13 December 2017 Rates: Corrective steepening, even if Fed holds scenario? We expect the US central bank to continue its tightening cycle and keep a more hawkish tone with (small) upside risks
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 informationHeadlines. Friday, 18 January Rates: Eco data vs risk sentiment. Currencies: dollar shows mixed picture. EUR/USD to bottom out?
Rates: Eco data vs risk sentiment A WSJ article suggested that the US pondered dropping Chinese tariffs. Risk sentiment improved, even if the headlines were later denied by a US Treasury official. Downside
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 informationHeadlines. Monday, 11 February Rates: Event risk looms large. Currencies: Dollar continues challenging recent ST high.
Rates: Event risk looms large The German 10-yr yields break below 0.15%, suggests a further slide towards 0% or lower. Risk sentiment will be reliable for today s intraday gyrations amid an empty eco/event
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 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 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 informationHeadlines. Thursday, 02 November Rates: Core bonds little moved after Fed meeting. Currencies: Dollar fails to extend gains.
Thursday, 02 November 2017 Rates: Core bonds little moved after Fed meeting. The FOMC statement upgraded the economic situation to solid from moderate confirming its intention to raise rates in December.
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 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 informationsrates: More outperformance of German Bunds vs US Treasuries? Currencies: US-Canada trade deal to support further USD gains against other majors?
srates: More outperformance of German Bunds vs US Treasuries? The US, Mexico and Canada reached a last-minute agreement to revamp NAFTA. US equity futures gain ground, while the US Note future is a tad
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 informationHeadlines. Thursday, 19 October Rates: Shun Catalan political risk. Currencies: EUR/USD resilient despite Catalan uncertainty.
Rates: Shun Catalan political risk Eco data and central bankers won t impact trading today. The Catalan-Madrid stand-off could escalate to a new phase. Cautiousness might be warranted. The Bund might profit
More informationCurrencies: Dollar struggles to extend gains even as core yields rise
Rates: Test of US 10-yr yield resistance ongoing Today s eco calendar contains German Ifo and US durable goods orders. We expect their impact to be of intraday importance at best ahead of tomorrow s ECB
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. 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 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 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 informationMarkets. Rates. Thursday, 15 February 2018
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
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 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 informationshowed a bearish engulfing pattern. More prolonged equity losses could support bonds via safe haven flows.
Tuesday, 24 October 2017 Rates: Bearish engulfing pattern in S&P 500 Today s eco calendar is interesting with EMU PMI s. We expect them to remain strong. Investors might remain in wait-andsee mode ahead
More informationRates: Higher oil pushed Bunds lower, but US Treasuries resilient
Rates: Higher oil pushed Bunds lower, but US Treasuries resilient It looks like markets are awaiting the FOMC meeting before giving core bonds an eventual new direction. Core bonds remain under pressure,
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
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