Rates: US stock market swoon triggers test of 2.8% support in US 10-yr yield

Transcription

1 Rates: US stock market swoon triggers test of 2.8% support in US 10-yr yield A heavy sell-off in US tech shares pulled general stock markets lowers and lifted core bonds via safe have flows. US Treasuries outperformed German Bunds with the US 10-yr yield heavily testing 2.8% support. Risk sentiment remains today s key driver ahead of inflation readings tomorrow and on Friday. Currencies: USD shows resilience even as sentiment turns risk-off again The dollar is holding off recent lows against the euro end the yen. The risk-on/risk off balance recently provided no clear guidance for USD trading, and at least for now, risk-off doesn t hurt the dollar. FX traders will keep a closer eye at the US trade balance data as foreign trade takes center stage in President Trump s political agenda. Calendar Headlines US stocks put in another dismal performance with Nasdaq underperforming (-3%) on fears over heightened regulation after Facebook s Zuckerberg was said to be willing to testify before US Congress. Main Asian indices lose around 1.5% overnight. 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 North Korean leader Kim Jong Un traveled to China to meet with Chinese president Xi Jingping in a mission to strengthen ties with Beijing ahead of a planned summit with US President Trump. The US and South Korea agreed to revise their six-year-old trade pact with a side deal to deter competitive currency devaluation by Seoul and with concessions for US autos and pharmaceutical companies, officials said. Atlanta Fed Bostic, voting FOMC member, said he supports plans to gradually raise rates, but uncertainty over how the economy would respond next year to tax cuts and increased government spending could complicate policy. Sources told The Times that Irish officials have been promised concrete details on what alternative plans the UK government has to avoid a post-brexit hard border, beyond the so-called backstop plan. Saudi Arabia and Russia are working on a historic long-term pact that could extend controls over world crude supplies by major exporters for many years. Today s eco calendar contains US advance trade balance and pending home sales. The US and Italy tap the bond market. P. 1

2 Rates Wednesday, 28 March 2018 Stock market swoon lifts US Treasuries US yield -1d 2 2,26-0,01 5 2,58-0, ,78-0, ,04-0,06 DE yield -1d 2-0,61-0,01 5 5,27-0, ,50-0, ,14-0,02 Core bonds eked out good gains yesterday with US Treasuries outperforming German Bunds. The lion part of the move occurred during US dealings following a new stock market swoon. A sell-off in big tech companies (fear of increased regulation following current Facebook scandal) pulled the main market significantly lower and provided a stream of safe haven bids in core bonds. Disappointing eco data on both sides of the Atlantic and end-of-month extension flows were marginally supportive as well. The US $35bn 5-yr Note auction went average. At the end of the day, US yields dropped by 5.5 bps (3-yr) to 7.7 bps (10-yr) with the belly outperforming the wings. The US 10-yr yield closed below 2.8% support. The German yield curve bull flattened with yields 0.6 bps (2-yr) to 2.1 bps (30-yr) lower. Peripheral yield spreads vs Germany narrowed by 2 to 4 bps. Asian stock markets follow WS lower with main indices around 1.5% in the red. The US Note future stabilizes near yesterday s highs. Chinese president Xi Jinping met with North-Korean leader Kim Jong Un and confirmed that the regime is willing to give up its nuclear weapons. The news failed to improve risk sentiment across the region. We expect the Bund to open slightly higher. Today s eco calendar contains US trade balance and pending homes sales. The US s trade deficit will draw some media headlines, but eco data will probably play second fiddle today. Risk sentiment remains key for trading. A techrelated sell-off took over from last week s trade worries as reason for general stock market weakness, lifting core bonds. We won t fight current upward momentum, but definitely put the sustainability of it in doubt. Attention turns to German CPI data and the US PCE deflator tomorrow. After the Fed meeting, we advocated corrective action in the US 10-yr yield towards 2.8%. This level came under new pressure yesterday with an official close just below. We interpret the test as still ongoing. The US 5-yr yield remains above a similar level for now (2.56%). The German 10-yr yield fell below 0.62% support after the ECB meeting, suggesting a technical correction towards 0.46%-0.48% support (gap open/62% retracement). Af US 10-yr yield: new test of 2.8% support after stock market swoon Nasdaq (intraday, this week): tech-sell off pulls general markets lower 4 P. 2

3 Currencies Dollar resilient as sentiment turns again risk-off R2 1,2598-1d R1 1,2555 EUR/USD 1,2403-0,0041 S1 1,2165 S2 1,2055 R2 0,9307-1d R1 0,9033 EUR/GBP 0,8761 0,0015 S1 0,8690 S2 0,8657 A correction lower in EUR/USD enfolded after a failed test of resistance. EC confidence was softer than expected. It wasn t the trigger for the correction, but provided a good excuse for additional selling. Several ECB members kept a soft tone. The intraday EUR/USD correction was not only due to euro softness. Dollar sentiment also improved slightly (both DXY and USD/JPY were upwardly oriented). A new sell-off hit US tech stocks. The reaction in FX was again modest compared to the swings in bonds and equities. EUR/USD closed the session at USD/JPY finished the day little changed at The US tech sell-off also affects Asian markets this morning with regional indices losing up to 1.5% with China and Japan underperforming. Even so, the major dollar/fx cross rates are again holding remarkably calm. The yen doesn t profit from the risk-off sentiment. USD/JPY (105.60) even gains a few ticks. EUR/USD hovers in the low 1.24 area. There are only second tier data in Europe today. US advance goods trade balance, inventory data, final Q4 GDP and pending homes sales will be published. Today s US data probably won t contain a game-changer for USD trading, but FX markets might become more sensitive to US foreign trade data, given recent campaign from the US administration to reduce the trade deficit. The reaction of the dollar might be asymmetrical, if any. The dollar might lose on a negative surprise, with little upside in case of a smaller deficit. FX traders also keep an eye at the global market context even if the risk-on/risk-off balance provided little guidance for USD trading of late. In a daily perspective, there a tentative signs of more dollar resilience, but the jury is still out. Any sustained USD gains probably need outright US data (especially price data). More technical trading in the EUR/USD / trading range might be on the cards. Sterling initially came under pressure yesterday, but reversed most losses later. Anticipation on a big corporate flow might have been in play. CBI retail data will be published today. UK retail data were mediocre of late. (Unconfirmed) rumours on progress on the issue of the Irish border might be slightly sterling supportive. For now we assume the range bottom to hold. USD/JPY holds off recent low even as equity sentiment turns again riskoff EUR/GBP: holding near the bottom of the established consolidation pattern P. 3

4 Calendar Wednesday, 28 March Consensus Previous US 14:30 Advance Goods Trade Balance (Feb) -$74.4b -$74.4b 14:30 Wholesale Inventories MoM (Feb P) 0.5% 0.8% 14:30 Retail Inventories MoM (Feb) % 14:30 GDP Annualized QoQ (4Q T) 2.7% 2.5% 14:30 Personal Consumption (4Q T) 3.8% 3.8% 14:30 Core PCE QoQ (4Q T) 1.9% 1.9% 16:00 Pending Home Sales MoM / NSA YoY (Feb) 2.0%/ %/-1.7% UK 12:00 CBI Retailing / Total Dist. Reported Sales (Mar) 7/-- 8/27 Germany 08:00 GfK Consumer Confidence (Apr) France 08:45 Consumer Confidence (Mar) Italy 10:00 Industrial Orders MoM / NSA YoY (Jan) --/-- 6.5%/6.9% Spain 09:00 Retail Sales SA YoY (Feb) % Events 11:00 Italy to Sell 0.95% 2023, 2% 2028 BTP s & 2025 FRN 17:30 & 19:00 US to Sell $15bn 2-yr FRN and $29bn 7-yr Notes 18:00 Fed's Bostic Speaks to Finance Professionals in Atlanta 10-year Close -1d 2-year Close -1d Stocks Close -1d US 2,78-0,08 US 2,26-0,01 DOW 23857,71-344,89 DE 0,50-0,02 DE -0,61-0,01 NASDAQ 7008, ,74 BE 0,77-0,03 BE -0,53-0,01 NIKKEI 21031,31-286,01 UK 1,42-0,02 UK 0,89 0,00 DAX 11970,83 183,57 JP 0,04 0,00 JP -0,15 0,00 DJ euro ,95 38,23 IRS EUR USD GBP EUR -1d -2d USD -1d -2d 3y 0,02 2,63 1,26 Eonia -0,3680-0,0010 5y 0,37 2,70 1,40 Euribor-1-0,3710-0,0010 Libor-1 1,8769 0, y 0,97 2,79 1,54 Euribor-3-0,3290 0,0000 Libor-3 2,2950 0,0000 Euribor-6-0,2710 0,0000 Libor-6 2,4538 0,0000 Currencies Close -1d Currencies Close -1d Commodities Close -1d EUR/USD 1,2403-0,0041 EUR/JPY 130,65-0,52 CRB 195,57-0,21 USD/JPY 105,34-0,07 EUR/GBP 0,8761 0,0015 Gold 1347,90-13,00 GBP/USD 1,4157-0,0072 EUR/CHF 1,1742-0,0027 Brent 70,11-0,01 AUD/USD 0,7679-0,0069 EUR/SEK 10,2088 0,0148 USD/CAD 1,2886 0,0043 EUR/NOK 9,5762 0,0165 If you no longer wish to receive this mail, please contact us: kbcmarketresearch@kbc.be to unsubscribe P. 4

5 Contacts Brussels Research (KBC) Global Sales Force Mathias van der Jeugt Brussels Peter Wuyts Corporate Desk Institutional Desk Dublin Research France Austin Hughes London Shawn Britton Singapore Prague Research (CSOB) Jan Cermak Prague Jan Bures Petr Baca 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