Rates: Interesting eco calendar probably lost market-moving potential

Transcription

1 Rates: Interesting eco calendar probably lost market-moving potential The post-fed rally continued yesterday on core bond markets with more outperformance of US Treasuries. The German 10- yr yield hit 0.15% support. Today s eco calendar is very interesting, but probably lost most of its market-moving potential after dovish signals from the ECB and the Fed. Stronger payrolls might nevertheless slow the bond rally. Currencies: EUR/USD returns in the 1.12/1.15 range. Topside test rejected The post-fed USD decline eased soon yesterday. EUR/USD did run into resistance, but this was partially due to euro weakness on poor EMU data and soft ECB comments. Today focus turns to the US eco data. The balance of the data might be more supportive for the dollar than for the euro. Calendar Headlines US equity markets rallied higher yesterday to cap their biggest monthly gain in three years. Technology shares outperformed. Asian equities are trading mixed with Chinese indices outperforming before being closed for the week. US President Trump said he will meet with Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as top negotiators on both sides are signalling substantial progress in the two days of high-level talks. 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 Bundesbank President Weidmann said that Germany s economic weakness will persist in 2019 and cause a significant lower growth. However, he added that the temporary slowdown shouldn t deter the ECB from normalizing policy. UK PM May is seeking Labour support to get her Brexit deal through. They are discussing to enhance British employment rights and environmental protections after Brexit, as well as money for deprived parts of the country. US President Trump will suspend US obligations under the Intermediate-Range Nuclear Forces Treaty, a pact with Russia since 1987 that was a pillar of international arms control. The US accuses Russia of noncompliance. China s Caixin PMI manufacturing decreased to 48.3 in January, down from 49.7 in December and below expectations (49.6). It is the second month of contraction in manufacturing sentiment and the biggest drop since July Today s economic calendar is richly filled with payrolls, hourly earnings and the ISM Manufacturing Index in the US. Canada and the UK print the Manufacturing PMI as well with CPI inflation up for release in the EMU. P. 1

2 Rates Key eco data, but little market moving potential? US yield -1d 2 2,46-0,05 5 2,44-0, ,63-0, ,00-0,04 DE yield -1d 2-0,56 0,00 5-0,32-0, ,15-0, ,75-0,04 Global core bonds extended gains yesterday. The main move occurred as US investors started entering trading and was follow-up action on the Fed s dovish policy statement and press conference on Wednesday evening. The decline in oil prices might have had some secondary impact as well. Brent crude fell from $62.5/barrel to $61/barrel. US Treasuries outperformed German Bunds. The US yield curve bull steepened again with yields declining by 5 bps (5-yr) to 3.7 bps (30-yr). The German yield curve flattened with yields losing up to 3.4 bps (30-yr). The German 10-yr yield tested this year s low around 0.15%. 10-yr yield spread changes vs Germany ranged between -2 bps (Spain) and +3 bps (Italy). Most Asian stock markets extend gains in line with WS yesterday, ignoring dreadful PMI s across the region. Constructive messages from US-Sino trade talks and talk about a possible PBOC rate cut lift bourses. China outperforms ahead of next week s close (Chinese NY). The Bund and US Note future tread water near yesterday s intraday highs. Today s eco calendar is very interesting, but we fear that it lost market-moving potential following the wait-and-see attitudes announced by both the ECB and the Fed at their first policy meetings of the year. They suggest that both central banks might stay sidelined through the Summer. Nevertheless, US payrolls are forecast to rise by 165k in January, half the pace from December, but still a decent level. We continue to see upside risks as the impact from the partial government shutdown is probably overrated. Government workers get backpay and won t distort the headline number. Subcontractors will have a negative impact, but we think the effect will be smaller than expected. The US manufacturing ISM is forecast to stabilize. We side with consensus as the ISM frontrunned declines in regional gauges (which did remain weak in January). The end of the shutdown and US-Sino trade evolutions might hang in the balance with negative effects stemming from the polar vortex. There are energy-related downside risks from the EMU headline CPI reading (1.4% Y/Y expected), but the core should stabilize as forecast at 1% Y/Y. So overall, today s eco data might slow the post-fed rally of core bonds, but we don t expect a turnaround yet. German Bunds might underperform for technical reasons. The Fed s clear signal suggests a return lower of the US 10-yr yield in the 2.49%-2.78% range. The German 10-yr yield tested the lower bound of the 0.15%-0.31% again. We expect sideways trading going forward with little reason at this stage to project upward breaks. On the other hand we also think that sufficient bad news is discounted at those levels, but messages coming from the January ECB and Fed meetings suggest unchanged policies from both, probably through the Summer. Af German 10-yr yield tests this year s low around 0.15%, dragged lower by US yields US 10-yr yield: return towards 2.5% area after Fed s dovish signal?! P. 2

3 Currencies EUR/USD fails to hold above 1.15 mark R2 1,1815-1d R1 1,1621 EUR/USD 1,1448-0,0032 S1 1,1187 S2 1,1119 R2 0, d R1 0,91 EUR/GBP 0,8732-0,0021 S1 0,8620 S2 0,8314 The post-fed USD decline already slowed yesterday. EUR/USD failed to sustain above This wasn t only due to a revival of the dollar. It was also to a large extent a sign of euro weakness. EMU data remained poor and European equities failed to join the US risk-rally. The euro declined further pressure after comments from BuBa s Weidmann. He expects soft German growth in 2019 but doesn t see it as reason for the ECB to delay policy normalisation. Still, the comments weighed further on the euro. EUR/USD closed at (from ). USD/JPY drifted south early in the session, but rebounded supported by a continuation of the US equity rally. The pair closed only marginally lower at Asian equities are trading mixed. China outperforms even as the Caixin manufacturing PMI (48.3) drifted further into contraction territory. The yuan (USD/CNY 6.74 area) returns part of this week s gain. Uncertainty on China growth also weighs on the Aussie dollar (AUD/USD dropped below ). USD/JPY is trading little changed this morning (USD/JPY area) and so does EUR/USD area). The eco calendar is well filled. In the US, the payrolls and the manufacturing ISM are in the spotlights. In Europe, EMU CPI and final manufacturing PMI s are scheduled for release. EMU headline CPI is expected to ease further to 1.4%. It probably won t help the euro even as the decline is mainly oil-driven. US job growth is expected to slow to 165k after a strong report (312K last month).the report might be distorted by the shutdown. The manufacturing ISM is expected to ease slightly to We don t see strong arguments for a big negative surprise. If so, today s data might turn out to be (slightly) USD supportive and tentative euro negative. Yesterday, we looked out for further USD losses in the wake of Powell s soft U-turn. However, the EUR/USD failure to regain the 1.15 level in a sustainable way is disappointing for euro bulls. EUR/USD remains blocked in the 1.12/15 range. Short term, a topside break looks far from evident. EUR/GBP initially hovered in the mid 0.87 area yesterday, but declined later. We didn t see much of high profile Brexit news. There are headlines on all kinds of political moves behind the scenes. A Brexit delay is still not excluded. However, big part of the EUR/GBP decline was probably euro-driven. Aside from Brexit headlines, the UK manufacturing PMI is expected to ease from 54.2 to We assume more order-driven trade in EUR/GBP near current levels. EUR/USD: returning in the 1.12/1.15 range as topside test/break failed EUR/GBP: sterling decline slows, for now P. 3

4 Calendar Friday, 1 February Consensus Previous US Wards Total Vehicle Sales (Jan) 17.20m 17.50m 14:30 Change in Nonfarm Payrolls (Jan) 165k 312k 14:30 Change in Private Payrolls (Jan) 175k 301k 14:30 Change in Manufact. Payrolls (Jan) 19k 32k 14:30 Unemployment Rate (Jan) 3.9% 3.9% 14:30 Average Hourly Earnings MoM/YoY (Jan) 0.3%/3.2% 0.4%/3.2% 14:30 Average Weekly Hours All Employees (Jan) :30 Labor Force Participation Rate (Jan) 63.0% 63.1% 14:30 Underemployment Rate (Jan) % 16:00 ISM Manufacturing (Jan) R 16:00 ISM Employment (Jan) R 16:00 ISM Prices Paid (Jan) :00 ISM New Orders (Jan) R 16:00 Construction Spending MoM (Dec) 0.2% -- 16:00 U. of Mich. Sentiment (Jan F) Canada 15:30 Markit Canada Manufacturing PMI (Jan) Japan 00:30 Job-To-Applicant Ratio (Dec) 1.63A :30 Jobless Rate (Dec) 2.4%A 2.5% 01:30 Nikkei Japan PMI Mfg (Jan F) 50.3A 50.0 UK 10:30 Markit UK PMI Manufacturing SA (Jan) EMU 10:00 Markit Eurozone Manufacturing PMI (Jan F) :00 CPI Core YoY (Jan A) 1.0% 1.0% 11:00 CPI Estimate YoY (Jan) 1.4% 1.6% Germany 09:55 Markit/BME Germany Manufacturing PMI (Jan F) France 09:50 Markit France Manufacturing PMI (Jan F) Italy 09:45 Markit/ADACI Italy Manufacturing PMI (Jan) China 02:45 Caixin China PMI Mfg (Jan) Norway 09:00 DNB/NIMA PMI Manufacturing (Jan) :00 Unemployment Rate (Jan) 2.5% 2.3% Spain 09:15 Markit Spain Manufacturing PMI (Jan) Sweden 08:30 Swedbank/Silf PMI Manufacturing (Jan) Events 2018Q4 earnings Merck & Co (12:45), Exxon Mobil (14:00) 15:45 Fed s Kaplan Speaks in Austin (non-voter) P. 4

5 10-year Close -1d 2-year Close -1d Stocks Close -1d US 2,63-0,05 US 2,46-0,05 DOW 24999,67-15,19 DE 0,15-0,04 DE -0,56 0,00 NASDAQ 7281,737 98,66 BE 0,60-0,04 BE -0,51 0,00 NIKKEI 20788,39 14,90 UK 1,22-0,04 UK 0,76-0,02 DAX 11173,1-8,56 JP -0,02-0,03 JP -0,18-0,01 DJ euro ,43-2,31 IRS EUR USD GBP EUR -1d -2d USD -1d -2d 3y -0,08 2,54 1,15 Eonia -0,3570 0,0120 5y 0,12 2,53 1,25 Euribor-1-0,3680 0,0000 Libor-1 2,5091 0, y 0,66 2,66 1,41 Euribor-3-0,3080 0,0000 Libor-3 2,7363 0,0000 Euribor-6-0,2360 0,0000 Libor-6 2,8115 0,0000 Currencies Close -1d Currencies Close -1d Commodities Close -1d EUR/USD 1,1448-0,0032 EUR/JPY 124,65-0,52 CRB 179,64-0,47 USD/JPY 108,89-0,15 EUR/GBP 0,8732-0,0021 Gold 1325,20 9,70 GBP/USD 1,3109-0,0007 EUR/CHF 1,1381-0,0032 Brent 60,84-0,70 AUD/USD 0,7273 0,0025 EUR/SEK 10,3567-0,0259 USD/CAD 1,3125-0,0024 EUR/NOK 9,6503-0,0216 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