Currencies: risk-rebound might support EUR/USD, at least temporary
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- Alan Hoover
- 5 years ago
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1 Rates: Risk rebound and higher oil prices weigh on core bonds Core bonds sell off this morning as US President Trump and Chinese President Xi reached a 90-day trade truce to settle differences. Oil prices surge ahead of Thursday s OPEC meeting. The risk rebound, higher oil prices and strong expected US eco data (manufacturing ISM) are expected to weigh further on core bonds today. Fed speakers are wildcards. Currencies: risk-rebound might support EUR/USD, at least temporary This morning, the dollar returns part of Friday s gain, as the safe haven bid is easing in the wake constructive China-US trade developments. The positive context should also be EUR/USD supportive. However, it will be interesting to see whether any EUR/USD rebound will have stronger legs than last week s post-powell rebound. Calendar Headlines US stock markets closed Friday s session with solid gains (+0.75%). Asian bourses opened firmly in green this morning, as investors welcome the ceasefire between China and the US. Chinese indices outperform. US president Trump and Chinese president Xi Jinping agreed to a temporary ceasefire, as Trump suspended his decision to raise the tariff rate on $200bn of Chinese imports starting from Both parties will now continue negotiations. 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 Spanish PM Sanchez s Socialist party suffered a setback in the regional election in Andalusia, as it only won 33 seats compared to 45 at the 2015 elections. The anti-immigrant and far right Vox party won seats (12) for the first time. Oil prices jumped 5% higher over the weekend as Russia and Saudi Arabia agreed to extend their deal into 2019 to manage the oil market (OPEC+) and Canada s largest oil producing province (Alberta) ordered large output cuts. China s Caixin Manufacturing PMI printed 50.2 in November, the highest reading since August. The index is up from 50.1 last month and beating consensus expectations of French president Emmanuel Macron held an emergency meeting with his ministers yesterday as the president faces a political crisis due to protests/riots against the high energy prices in Paris and other French cities. Today s economic calendar contains the November US manufacturing ISM and UK manufacturing PMI. Numerous Fed heavyweights speak today, including Fed Vice Chairman Clarida. P. 1
2 Rates Risk rebound and higher oil prices weigh on bonds US yield -1d 2 2,79-0,02 5 2,88-0, ,99-0, ,33-0,03 DE yield -1d 2-0,60 0,00 5-0,27-0, ,31-0, ,99-0,01 Global core bonds drifted higher last Friday ahead of the meeting between US President Trump and Chinese President Xi Jinping on the sidelines of the G20- meeting in Buenos Aires. US Treasuries outperformed German Bunds in a suspicious leap higher in the final US trading hour. Core EMU inflation unexpectedly slowed from 1.1% Y/Y to 1% Y/Y, undermining ECB President Draghi s rhetoric that wage pressure, the EMU economy s strong performance since 2015 and the effects of the ECB s very easy monetary will trigger a vigorous uptick in underlying inflation. US yields declined by 2.2 bps (2-yr) to 4.3 bps (10-yr) on a daily basis. The German yield curve flattened with yield differences ranging between +0.1 bp (2-yr) and -1.1 bp (30-yr). 10-yr yield spreads changes vs Germany ended nearly unchanged. Asian stock markets gain more than 1% this morning with China (+3%) outperforming. The Xi-Trump meeting delivered a 90-day truce (until March 1) in which the US won t add tariffs and China pledged to buy more US products. Both sides will continue negotiations on more structural issues. Brent crude rises from $60/barrel to $62/barrel. Saudi Arabia and Russia are likely to push for production cuts at Thursday s OPEC meeting while Canada s largest oil producing providence, Alberta, ordered an unprecedented oil output cut. US Treasuries sold off significantly this morning with a weaker opening for the Bund expected as well. Regional Spanish election (Andalusia) show a significant setback for PM Sanchez Socialists which could lose control for the first time in 36 years. They weaken Sanchez minority federal government, with rumours already circulating of snap elections if he fails to pass a national budget. We don t expect Spanish underperformance on peripheral markets at this stage, but closely monitor the situation. Today s eco calendar contains the US manufacturing ISM. Consensus expects a stabilization around 57.5 following two consecutive significant drops. We see risks on the upside of expectations. Positive risk sentiment, good US eco data and higher oil prices point to weaker core bonds today. Heavyweight Fed governors Clarida, Quarles, Brainard and Williams are all scheduled to speak and serve as wildcards. We argued before that market expectations shifted in a too dovish way following last week s overly interpreted Powell remarks. Rate markets anticipate only 1 hike next year compared to the median of the Fed s September dots (3). A US 10-yr yield bounces off 3% mark on improved risk sentiment and higher oil prices Brent crude rallies away from $60/barrel anticipating a production cut agreement at Thursday s OPEC meeting P. 2
3 Currencies Risk trade to support EUR/USD, at least temporary R2 1,1815-1d R1 1,1621 EUR/USD 1,1317-0,0076 S1 1,1187 S2 1,1119 R2 0,8997-1d R1 0,894 EUR/GBP 0,8874-0,0035 S1 0,8700 S2 0,862 The USD traded with an upward bias on Friday. The post-powell correction had run its course. Investors were reluctant to take risky assets on board ahead of the Trump-Xi meeting on Saturday, providing a modest safe haven bid for the dollar. A strong Chicago PMI was also USD-supportive. On the euro side of the story, a contraction in the Q3 Italian GDP and a soft EMU core inflation were tentative euro negatives. EUR/USD closed the session at (from ). A modest USD/JPY intraday gain evaporated later. The pair closed at (from ). On Saturday, US president Trump and Chinese president Xi Jinping agreed to halt the race to higher tariffs and to intensify talks to solve the trade dispute. The improved US China sentiment triggered a risk rally in Asia this morning. At the same time, oil rebounds on growing signs that Saudi- Arabia and Russia might agree on action to stop the recent oil price decline. The trade-weighted dollar is easing below the 97 mark. The likes of the Aussie dollar (AUD/USD ) outperform. The yuan also profits (USD/CNY below 6.91). The gain in EUR/USD ( area) is more modest. USD/JPY (113.50) also doesn t profit from the risk on trade. Today, the final Nov EMU PMI s and the US manufacturing ISM will be published. Several Fed Members will also give their view going into the December policy meeting. Last but not least, we are keen to see the degree of conviction in the post G20 equity rebound. In theory, a risk rebound in combination with rising oil prices should be USD negative. At the same time, US yields might rise, too. A potential negative risk factor/obstacle for the US economy and for the Fed normalisation process is easing. We start the week with a cautious positive bias for EUR/USD. However, last week s post- Powell reaction in mind, we are not convinced that the move will have strong legs. For now, we assume the 1.15/ range top wil remain a tough nut to crack short-term. In technical trade, EUR/GBP initially hovered in the 0.89 area on Friday. Some sterling shortcovering going into the weekend caused the pair to close at This week, the political noise in the run-up to next week s Brexit vote will continue to dominate sterling trading. Today, the UK government might come under pressure to publish the legal advice supporting the Brexit bill. One can expect LT investors to stay sidelined as long as the binary Brexit risk persists. We maintain a cautious approach on sterling. EUR/USD: Risk-on sentiment to open the way for a test higher? EUR/GBP: uncertainty for sterling persists as UK prepares for Brexit vote P. 3
4 Calendar Monday, 3 December Consensus Previous US 16:00 Construction Spending MoM (Oct) 0.4% 0.0% 16:00 ISM Manufacturing (Nov) :00 ISM Employment (Nov) :00 ISM Prices Paid (Nov) :00 ISM New Orders (Nov) Canada 15:30 Markit Canada Manufacturing PMI (Nov) Japan 00:50 Capital Spending YoY (3Q) 4.5%A 12.8% China 02:45 Caixin China PMI Mfg (Nov) UK 10:30 Markit UK PMI Manufacturing SA (Nov) EMU 10:00 Markit Eurozone Manufacturing PMI (Nov F) Germany 09:55 Markit/BME Germany Manufacturing PMI (Nov F) France 09:50 Markit France Manufacturing PMI (Nov F) Italy 09:45 Markit/ADACI Italy Manufacturing PMI (Nov) Spain 09:15 Markit Spain Manufacturing PMI (Nov) Norway 09:00 DNB/NIMA PMI Manufacturing (Nov) Sweden 08:30 Swedbank/Silf PMI Manufacturing (Nov) Events 12:30 Fed Vice Chairman Clarida Interviewed on Bloomberg TV & Radio 14:00 Fed s Quarles speaks at Council on Foreign Relations in NYC 15:15 Williams Speaks at a NY Conference on Treasury Market 16:00 Brainard Gives Keynote at NY Fed s Treasury Market Conference 19:00 Fed s Kaplan Speaks at Community Forum in Laredo, Texas P. 4
5 10-year Close -1d 2-year Close -1d Stocks Close -1d US 2,99-0,04 US 2,79-0,02 DOW 25538,46 199,62 DE 0,31-0,01 DE -0,60 0,00 NASDAQ 7330,537 57,45 BE 0,76-0,01 BE -0,55-0,01 NIKKEI 22574,76 223,70 UK 1,36 0,00 UK 0,78 0,01 DAX 11257,24-40,99 JP 0,08-0,01 JP -0,13 0,00 DJ euro ,13-1,03 IRS EUR USD GBP EUR -1d -2d USD -1d -2d 3y -0,02 2,96 1,25 Eonia -0,3490 0,0140 5y 0,28 2,96 1,36 Euribor-1-0,3680 0,0000 Libor-1 2,3469-0, y 0,88 3,04 1,56 Euribor-3-0,3160 0,0000 Libor-3 2,7361-0,0020 Euribor-6-0,2510 0,0020 Libor-6 2,8946 0,0094 Currencies Close -1d Currencies Close -1d Commodities Close -1d EUR/USD 1,1317-0,0076 EUR/JPY 128,44-0,85 CRB 181,74-0,58 USD/JPY 113,57 0,09 EUR/GBP 0,8874-0,0035 Gold 1226,00-4,40 GBP/USD 1,2749-0,0042 EUR/CHF 1,1309-0,0037 Brent 59,46-0,45 AUD/USD 0,7306-0,0013 EUR/SEK 10,3025-0,0291 USD/CAD 1,3292 0,0010 EUR/NOK 9,7556 0,0317 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: 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: 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. Wednesday, 12 September Rates: US 10-yr yield eyes 3% Currencies: dollar holding tight ranges. Calendar
Rates: US 10-yr yield eyes 3% Strong eco data, higher oil prices and heavy supply keep core bonds under downward pressure as trade tensions ease. The same factors remain at play today. The US 10-yr yield
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 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, 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 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 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. Friday, 12 January Rates: Hawkish ECB Minutes are bearish for Bunds. Currencies: EUR/USD nears again range top.
Rates: Hawkish ECB Minutes are bearish for Bunds Hawkish ECB Minutes surprised markets yesterday. They suggest changes to the ECB s forward guidance early this year. The German 10-yr yield is heading for
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 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. Friday, 07 December Rates: Will calm return to (interest rate) markets?
Rates: Will calm return to (interest rate) markets? European equity markets had their worst performing day since the Brexit referendum in June 2016. Risk-aversion supported core bonds, pushing yields below
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 informationHeadlines. Tuesday, 10 January Rates: Oil main driver core bonds. Currencies: Dollar and sterling ceding ground. Calendar
Tuesday, 10 January 2017 Rates: Oil main driver core bonds. A declining oil price and fragile risk sentiment mainly benefited US Treasuries yesterday despite upcoming supply. Today s eco calendar remains
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
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 informationCurrencies: Both EUR/USD and USD/JPY hold near recent correction top
Tuesday, 02 May 2017 Rates: Investors sidelined ahead of key events? Today s eco calendar contains the final EMU manufacturing PMI and EMU unemployment rate. We don t expect them to influence trading ahead
More informationRates: Have bond markets reached some kind of ST exhaustion move?
Rates: Have bond markets reached some kind of ST exhaustion move? Bond markets faced a sharp repositioning yesterday as investors adapted investments to the latest developments in Italy. German and US
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 informationRates: Higher oil price, strong data and comments give sell-off more fuel
Thursday, 01 December 2016 Rates: Higher oil price, strong data and comments give sell-off more fuel The US and German curves bear steepened. The technical pictures remain bearish and today s eco data
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: 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: dollar extends correction after rejected test of the recent highs
Rates: Treasuries correct higher, but eyes on US eco data The eco calendar heats up in the US with non-manufacturing ISM, ADP employment and weekly claims. Risks for the ISM are on the upside of expectations,
More informationHeadlines. Thursday, 01 June Rates: US 10-yr yield heading for test of 2.16% support?
Thursday, 01 June 2017 Rates: US 10-yr yield heading for test of 2.16% support? Today s market calendar heats up in the US. Risks for ADP are tilted on the downside of expectations while the price component
More informationCurrencies: USD in consolidation modus ahead of ECB and Payrolls
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 informationMarkets. Rates. Wednesday, 10 May 2017
Wednesday, May 7 Markets Rates 6 - Policy Rates,,8,6,, -, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M The Fed and ECB kept their policy unchanged but key meetings are lining
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 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
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