Headlines. Tuesday, 11 September Rates: Technically driven trading in absence of data/events

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1 Rates: Technically driven trading in absence of data/events Tuesday, 11 September 2018 Today s eco calendar is empty apart from German ZEW investor sentiment which probably won t impact trading. We expect market action to be sentiment-driven and technically in nature. The start of the US s mid-month refinancing operation could cause an underperformance of US Treasuries. Currencies: Euro sentiment improves, at least temporary The dollar reversed most of its post-payrolls gains yesterday. EUR/USD returned to the 1.16 area. A constructive risk sentiment blocked further USD gains. The euro was supported as investors turn less negative on Italian assets. Sterling continues to profit from market hopes on a brexit deal in a not-that-distant future. Calendar Headlines US equity markets were mixed on Monday, with DOW JONES (-0.23%) underperforming. Asian markets opened mixed this morning, with China back in green but Japan and Korea outperforming. Others show small losses. North Korean leader Kim Jong Un has invited US President Trump for another meeting in a very warm, positive letter. US officials said they started planning a 2 nd summit to follow-up on the denuclearisation pledge that was made in June. 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 Canada s foreign minister Freeland arrives in Washington later today to start a fresh round of trade talks with US trade representative Lighthizer to reach a deal on Nafta, while Mexico said to be open to sign a bilateral deal with the US. That same Lighthizer, US trade representative, said that a partial trade deal with the EU could be reached as early as November. The comments were made after a Brussels meeting with EU trade commissioner Malmstrom yesterday. Tory Eurosceptics have failed to publish a detailed blueprint for the UK-EU future relationship. Their Brexit plan B, as an alternative to May s Chequers plan, could not unify the Eurosceptics, leaving hope for the PM s proposal. Presidents of China and Rusland, Xi Jinping and Vladimir Putin, will meet today at the Eastern Economic Forum. The pair may discuss North-Korea. Putin s discussion yesterday with Japanese PM Abe produced no breakthroughs. Today s US eco calendar is rather dull, with only the secondary eco data in the US and the labour data in the UK. In Germany, the ZEW investor Survey of economic sentiment will be published. P. 1

2 Rates Tuesday, 11 September 2018 Awaiting next events, US supply negative for US T s? US yield -1d 2 2,71 0,01 5 2,83 0, ,93-0, ,09-0,02 DE yield -1d 2-0,54 0,01 5-0,16 0, ,40 0, ,09 0,02 Global core bonds traded mixed yesterday with the US Note future stabilizing and the Bund losing ground. The Bund s first down leg coincided with strength on the Italian BTP market. Italian FM reassured investors that the country has no intention to go against EU budget rules and that it will try to keep debt-to- GDP on a modest downward trajectory. The Bund tested the intraday lows again in the afternoon via losses on the UK Gilt market after EU Barnier hinted that a brexit deal is possible within 6 to 8 weeks. The German yield curve bear steepened with yields 0.9 bps (2-yr) to 1.9 bps (30-yr) higher. The US yield curve flattened with yield changes varying between +0.8 bps (2-yr) and -2.1 bps (30- yr). The curve move might still be inspired by Friday s strong US wage data which boosted the probability of two more rate hikes this year. 10-yr yield spreads vs Germany narrowed up to 3 bps with Greece (-11 bps) and Italy (-14 bps) outperforming. Asian stock markets trade mixed overnight with Japan outperforming on the back of a weaker yen. The US Note future is steady. We expect a neutral opening for the Bund. Today s eco calendar is uneventful with only German ZEW investor sentiment. Consensus expects a stabilization around August levels for both current assessment and expectations. We don t expect the ZEW to influence trading. Trade developments remain a wildcard and provide a small bid in core bonds if they reappear. The US Treasury s mid-month refinancing operation ( ) starts today and could result in underperformance of US Treasuries vs German Bunds. The eco calendar for the rest of the week remains rather dull with only an ECB policy meeting (Thursday), US retail sales (Friday) and speeches by a whole lot of Fed members. The ECB meeting will probably be low key after the June policy decisions. The ECB handed itself little room to manoeuvre until next Summer, but president Draghi could further stress early signs that inflation will pick up towards the ECB s goal. Hurricane Florence is about to hit the US East coast on Thursday or Friday and might get more and more attention as well. Technically, both the German 10-yr yield and the US 10-yr yield remain firmly anchored within sideways trading ranges, respectively between 0.3% and 0.5% and between 2.8% and 3%. We advise to play these ranges. Af German 10-yr yield: 0.3%-0.5% sideways range US 10-yr yield: Moving higher in 2.8%-3% range trading P. 2

3 Currencies Sentiment on the euro improves (slightly) R2 1,2155-1d R1 1,1996 EUR/USD 1,1594 0,0041 S1 1,1510 S2 1,1448 R2 0,9033-1d R1 0,8968 EUR/GBP 0,8900-0,0041 S1 0,8628 S2 0,8548 On Monday, the dollar failed to extend its post-payrolls gain. EUR/USD touched minor low in the /30 area early in Europe, but this first support held. Risk sentiment improved as investors turned less negative on Italian assets. This supported the euro and prevent further USD gains. Later, the euro extended gains as EU s Barnier saw a good chance for a brexit deal in the next 6-to-8 weeks. EUR/USD (temporarily?) regained 1.16 and closed at , reversing most of the post-payrolls rebound. USD/JPY profited slightly from the constructive risk sentiment and finished at Overnight, Asian equities mostly show modest gains. EM stress and US/China trade tensions are moving to background, at least temporary. Most EM currencies that suffered of late are stabilizing. The Russian rouble underperforms as government officials try to convince the central bank to be cautious on hiking rates. EUR/USD is holding near The yen eases slightly as risk sentiment improves. USD/JPY rebounded to the mid 111 area. Today, the eco calendar in the Europe and the US is thin. German ZEW sentiment is expected stable after recent declines. US NFIB small business confidence is expected to hold near record levels. Of late, the USD showed no clear trend. The US currency profited only modestly from good US data. A flaring up of trade tensions or EM stress was also only a temporary support. ST term, EUR/USD is blocked in a tight / consolidation pattern. For now, we see no trigger to unlock this stalemate Short term. A new flaring up in the trade tensions remains a wild card. However, even in this case a sustained USD rebound isn t guaranteed. Last week, markets saw some tentative signs that the EU and the UK might come closer to a brexit deal supporting sterling. This pattern continued yesterday, as EU s Barnier saw a brexit deal possible within 8 weeks. EUR/GBP dropped to the 0.89 area. UK eco data were constructive too. Toda, the UK labour market data take centre stage. Job growth is expected soft and wage growth (ex-bonus) is seen at 2.8%. A positive surprise might fit in recent sterling constructive momentum. That said, brexit headlines probably will continue to dominate sterling trading. Over the previous days, markets saw the brexit-glass half-full, but this can still change. We maintain to view that real brexit progress is needed to justify a sustained comeback of sterling. EUR/USD going nowhere, holding established consolidation pattern EUR/GBP: Brexit hope continues to support sterling short-term P. 3

4 Calendar Tuesday, 11 September Consensus Previous US 12:00 NFIB Small Business Optimism (Aug) :00 JOLTS Job Openings (Jul) :00 Wholesale Trade Sales MoM (Jul) 0.1% -0.1% 16:00 Wholesale Inventories MoM (Jul F) 0.7% 0.7% Japan 01:50 Money Stock M3 YoY (Aug) 2.5%A 2.5%R 06:30 Tertiary Industry Index MoM (Jul) 0.1%A -0.6%R UK 10:30 Claimant Count Rate (Aug) % 10:30 Jobless Claims Change (Aug) k 10:30 Average Weekly Earnings 3M/YoY (Jul) 2.4% 2.4% 10:30 Weekly Earnings ex Bonus 3M/YoY (Jul) 2.8% 2.7% 10:30 ILO Unemployment Rate 3Mths (Jul) 4.0% 4.0% 10:30 Employment Change 3M/3M (Jul) 10k 42k EMU 11:00 ZEW Survey Expectations (Sep) Germany 11:00 ZEW Survey Current Situation (Sep) :00 ZEW Survey Expectations (Sep) Norway 08:00 GDP Mainland (MoM) (Jul) :00 GDP (MoM) (Jul) Events 09:15 Riksbank's Ingves in London Roundtable 13:45 Riksbank Governor Ingves Gives Speech in London 14:00 ECB's Nouy Speaks in Strasbourg, France 19:00 US to Sell USD35 Bln 3-Year Notes P. 4

5 10-year Close -1d 2-year Close -1d Stocks Close -1d US 2,93-0,01 US 2,71 0,01 DOW 25857,07-59,47 DE 0,40 0,01 DE -0,54 0,01 NASDAQ 7924,16 21,62 BE 0,73-0,01 BE -0,45 0,01 NIKKEI 22659,38 286,29 UK 1,47 0,01 UK 0,77 0,01 DAX 11986,34 26,71 JP 0,11-0,01 JP -0,11 0,00 DJ euro ,28 15,92 IRS EUR USD GBP EUR -1d -2d USD -1d -2d 3y 0,00 2,95 1,21 Eonia -0,3580 0,0030 5y 0,31 2,95 1,35 Euribor-1-0,3710 0,0010 Libor-1 2,1310 0, y 0,92 2,99 1,56 Euribor-3-0,3190 0,0000 Libor-3 2,3313 0,0000 Euribor-6-0,2690 0,0000 Libor-6 2,5415 0,0000 Currencies Close -1d Currencies Close -1d Commodities Close -1d EUR/USD 1,1594 0,0041 EUR/JPY 128,85 0,62 CRB 191,02 0,66 USD/JPY 111,13 0,14 EUR/GBP 0,8900-0,0041 Gold 1199,80-0,60 GBP/USD 1,3026 0,0106 EUR/CHF 1,1305 0,0105 Brent 77,37 0,54 AUD/USD 0,7115 0,0008 EUR/SEK 10,5134 0,0477 USD/CAD 1,3164 0,0003 EUR/NOK 9,7278-0,0377 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