Currencies: dollar momentum improves going into US CPI release
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- Piers Lambert
- 5 years ago
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1 Rates: Downward bias core bonds Yesterday s risk aversion proves to be short-lived with Asian stock markets and US equity futures extending their recent rebound higher. US CPI inflation is forecast to rise further above the Fed s 2% inflation goal. The tentative topping-off pattern on core bond markets could be strengthened in such context with US Treasuries underperforming Bunds. Currencies: dollar momentum improves going into US CPI release Yesterday, the dollar profited from several factors including uncertainty on global trade, stronger than expected US PPI and a decline in commodity prices. Today, the risk sentiment is easing. A strong US CPI might inspire some further USD gains short-term. Even so, the EUR/USD 1.15 support looks solid for now. USD/JPY cleared the ST range top. Calendar Headlines US equity markets suffered yesterday from rising trade tensions, closing the day in red (-0.5% - 0.9%). Asian exchanges traded pessimism for optimism this morning, with China outperforming (+2%). US President Trump yesterday ordered trade representative Lighthizer to prepare tariffs of 10% on an additional $200bn of Chinese imports. Last week, the US already targeted $34bn worth of Chinese goods. 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 Amidst China s threats to respond to the US, its Vice Minister of Commerce Shouwen overnight called on his American counterparts to resume talks. The last round of negotiations ended up with little progress on the matter. The Bank of Canada raised its interest rate to 1.5% yesterday as inflation is nearing its 4 yr high. To keep inflation in check and despite increasing trade tensions, the Bank reiterates rates will need to rise further, albeit gradually. Oil slumped more than 6% yesterday, as Trump s latest move in the trade dispute fuelled investor s fears it will weaken the growth outlook. Other commodities such as copper (-3%), also suffered. UK PM May will publish the white paper, detailing the UK vision for its future economic relationship with the EU. The proposal contains a free-trade area for goods while keeping freedom for arrangements in the services sector. Today s eco calendar contains US weekly initial jobless claims, US inflation data (CPI) and EMU industrial production. Fed s Kashkari and Harker speak. Italy taps the bond market. P. 1
2 Rates Thursday, 12 July 2018 Tentative topping off pattern in Bund and US Note future US yield -1d 2 2,58 0,01 5 2,76 0, ,85 0, ,96 0,00 DE yield -1d 2-0,63 0,01 5-0,28 0, ,37 0, ,02-0,02 Global core bonds started on a strong footing yesterday as the US listed an additional $200bn of Chinese imports for possible tariffs. The list sent stock and commodity prices lower. The Bund and the US Note future failed to build on these opening gains even if stocks couldn t recover. Brent crude recorded the biggest percentage drop in two years time, from $79/barrel towards just above $73/barrel. Higher-than-expected US PPI and a sources article suggesting that the ECB s new forward guidance on rates might cover a July 2019 rate hike, offered some counterweight against safe haven flows. The German yield curve flattened with yield changes ranging between bp (2-yr) and -1.8 bps (30-yr). The US yield curve flattened as well with yield changes varying between +0.8 bps (2-yr) and -0.3 bps (30-yr). Peripheral yield spreads vs Germany widened slightly. Investors traded yesterday s trade pessimism for optimism this morning after China s Vice Minister of Commerce called on his US counterparts to start a new round of bilateral negotiations. Stock (futures) are in the green and the US Note future grinds lower. We expect a somewhat weaker opening for the Bund. Today s eco calendar contains outdated (May) EMU industrial production data (1.2% M/M expected), US weekly jobless claims (225k forecast) and US CPI inflation (0.2% M/M & 2.9% Y/Y for headline and 0.2% M/M & 2.3% Y/Y for core). Production was primarily driven by Germany in May (2.6% M/M) with other national data printing more subdued. US claims continue to hover near historically low levels, pointing to US labour market strength. US CPI is today s main figure. Both core and headline readings are expected to rise further above the Fed s 2% inflation goal. We side with consensus, but keep yesterday s higher PPI s in mind. The outcome won t go unnoticed and could weigh on US Treasuries today, together with the improvement in risk sentiment. We have a downward bias for core bonds and think that the tentative topping-off pattern could be further established. Speeches by non-voting Fed governors Kashkari (arch dove) and Harker (neutral) are wildcards. The Italian BTP auction is relatively small and shouldn t be a problem. Technically, the German 10-yr yield tested support just below 0.3%. A break didn t occur, suggesting room to move higher in the 0.3%-0.5% range. The US 10-yr yield hovers near the middle of the sideways range between 2.71% and 3.12%. Af German 10-yr yield failed test of 0.3% support, suggests move higher in 0.3%-0.5% range US 10-yr yield: near middle of the sideways range between 2.71% and 3.12% P. 2
3 Currencies USD shows resilience going into US CPI release R2 1,2155-1d R1 1,1996 EUR/USD 1,1674-0,0070 S1 1,1510 S2 1,1448 R2 0,9033-1d R1 0,8968 EUR/GBP 0,8840-0,0006 S1 0,8628 S2 0,8548 Yesterday, the USD price pattern was a bit diffuse. The US preparing an additional $200 bln of tariffs on Chinese imports weighed on global sentiment. Initially, the impact on the dollar was limited. The euro even rebounded temporary on a Reuters article indicating ongoing internal debate on the timing of a first ECB rate hike. Even a July 2019 hike was said not being excluded yet. Later, USD strength returned. Several factors might have been at play, including a sharp decline in oil prices and higher than expected US PPI. EUR/USD closed at (from ). The rise in USD/JPY was also remarkable. The pair closed the day at , breaking above the ST range top. This morning, most Asian equity indices are rebounding. The fall-out from the US import tariffs is already receding. Even so, the dollar is holding strong. USD/CNY came again with reach of the 6.70 level. USD/JPY extends gains north of 112. EUR/USD trades below Broad US gains and softness in oil and other commodities pushed AUD/USD back below Today, there are only second tier data in Europe. In the US, the June CPI will be published. Headline inflation is seen rising to 2.9% Y/Y. Core to 2.3%. Of late the reaction of the dollar to US data was often modest as markets questioned whether the Fed could keep the current pace of rate hikes given global political and economic uncertainty. Yesterday s price action suggests that the dollar might still be sensitive to higher than expected inflation. So, it will be interesting to see the market react in case of headline inflation rising to 3%. At the same time, other factors (oil, risk sentiment) also remain wildcards for USD trading. The day-to-day momentum of the USD improved yesterday. Even so, we suppose that the EUR/USD 1.15 range bottom to be solid. USD/JPY breaking beyond suggests that further gains in this cross rate are possible. The new Brexit plan of the UK government reached on Friday didn t break the stalemate for sterling trading. EUR/GBP remains locked in a very narrow range in the mid 0.88 area. Political uncertainty in the UK remains as elevated as it was before. The plan also contains several factors that will be difficult to accept for the EU. Today, the entire White Paper will be published. We don t expect this to change fortunes for sterling. For now, we expect sterling (EUR/GBP) to hold near recent levels unless there are signs of real progress in the negotiations with the EU. EUR/USD: dollar rebounds even as debate on ECB rate hike persists. US CPI to support further USD gains? EUR/GBP is still going nowhere as UK political uncertainty remains high even after Brexit agreement. P. 3
4 Calendar Thursday, 12 July Consensus Previous US 14:30 Initial Jobless Claims 225k 231k 14:30 Continuing Claims 1730k 1739k 14:30 CPI MoM/YoY (Jun) 0.2%/2.9% 0.2%/2.8% 14:30 CPI Ex Food and Energy MoM/YoY (Jun) 0.2%/2.3% 0.2%/2.2% 14:30 Real Avg Hourly/Weekly Earnings YoY (Jun) %/0.3% UK 01:01 RICS House Price Balance (Jun) 2% A -3% EMU 11:00 Industrial Production SA MoM/WDA YoY (May) 1.2%/2.4% -0.9%/1.7% Germany 08:00 CPI EU Harmonized MoM/YoY (Jun F) 0.1%/2.1% 0.1%/2.1% France 08:45 CPI EU Harmonized MoM/YoY (Jun F) 0.1%/2.4% 0.1%/2.4% Sweden 09:30 CPIF MoM/YoY (Jun) 0.3%/2.3% 0.3%/2.1% 09:30 Riksbank Minutes Events 14:30 Fed's Kashkari Speaks on Panel Discussing Immigration 18:15 Fed's Harker Speaks at Rocky Mountain Economic Summit 11:00 Italy to Sell 0.05% 2021 Bonds P. 4
5 10-year Close -1d 2-year Close -1d Stocks Close -1d US 2,85 0,00 US 2,58 0,01 DOW 24700,45-219,21 DE 0,37 0,05 DE -0,63 0,01 NASDAQ 7716,611-42,59 BE 0,69-0,01 BE -0,51 0,00 NIKKEI 22202,91 270,70 UK 1,29-0,01 UK 0,75 0,00 DAX 12417,13-192,72 JP 0,04 0,00 JP -0,13 0,00 DJ euro ,35-50,96 IRS EUR USD GBP EUR -1d -2d USD -1d -2d 3y -0,03 2,87 1,17 Eonia -0,3620 0,0000 5y 0,27 2,89 1,33 Euribor-1-0,3690 0,0010 Libor-1 2,0665 0, y 0,87 2,92 1,54 Euribor-3-0,3210 0,0000 Libor-3 2,3374 0,0000 Euribor-6-0,2710-0,0020 Libor-6 2,5119 0,0000 Currencies Close -1d Currencies Close -1d Commodities Close -1d EUR/USD 1,1674-0,0070 EUR/JPY 130,76 0,40 CRB 192,83-5,46 USD/JPY 112,01 1,01 EUR/GBP 0,8840-0,0006 Gold 1244,40-11,00 GBP/USD 1,3205-0,0071 EUR/CHF 1,1628-0,0021 Brent 73,40-5,46 AUD/USD 0,7366-0,0093 EUR/SEK 10,2997 0,0328 USD/CAD 1,3209 0,0096 EUR/NOK 9,4664 0,0509 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) Dublin Research France Austin Hughes London Shawn Britton Singapore Prague Research (CSOB) Jan Cermak Prague 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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Wednesday, January 8 Markets Rates,, -, - Policy Rates,7,,,7,, -, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M The Fed raised its policy rate by bps to.-.% in December and confirmed
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Markets Rates, - - Policy Rates, - EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M Major central banks kept rates stable. The ECB and Fed however adjusted forward guidance, signalling
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More informationHeadlines. Friday, 17 November Rates: Cautiousness ahead of the weekend? Currencies: Dollar fails to extend rebound. Calendar.
Internal Rates: Cautiousness ahead of the weekend? US Treasuries outperform this morning as US political risk showed another dimension. Risk sentiment will to continue to play a key role today. The proof
More informationHeadlines. Tuesday, 05 March Rates: First 10y Greek bond sale in almost a decade. Currencies: EUR/USD correction off 1.14 resistance continues
Rates: First 10y Greek bond sale in almost a decade Yesterday s market correlations were very loose amid an empty eco/event calendar. The US non-manufacturing ISM spices trading today. We expect a strong,
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 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 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 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. Tuesday, 03 January Rates: Can stronger ISM already trigger new selling pressure?
Rates: Can stronger ISM already trigger new selling pressure? The first real trading session of the year features the US manufacturing ISM and German inflation data. Risks for the ISM are on the upside
More informationHeadlines. Thursday, 20 April Rates: Working off overbought conditions. Currencies: dollar still going nowhere. Calendar
Rates: Working off overbought conditions Today s eco calendar contains US weekly jobless claims, Philly Fed business outlook and EMU consumer confidence. Data aren t expected to inspire trading, but a
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 informationHeadlines. Friday, 24 November Rates: Range bound trading going into the weekend? Currencies: EUR/USD holds within reach of 1.
Rates: Range bound trading going into the weekend? Traded volumes are expected to remain low today with US trading desks thinly staffed on Black Friday. A strong German IFO and progress in German formation
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 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 informationMarkets. Rates. Wednesday, 13 September 2017
Wednesday, September 7 Markets Rates,, -, Policy Rates,,,8,6,, -, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M The ECB delayed decisions on its APP to October. Sources suggested
More informationCurrencies: Dollar maintains benefit of the doubt ahead of Powell speech
Rates: Downward intraday bias for core bonds Improved risk sentiment might weigh on core bonds. Italian media suggest that the EC is willing to accept a 2% Italian deficit for next year. This seems negotiable
More informationHeadlines. Monday, 13 November Rates: Side-lined ahead of central bankers and US eco data?
Rates: Side-lined ahead of central bankers and US eco data? Today s eco calendar remains uninspiring. We expect trading to be sentiment-driven and technical in nature. The downward equity correction hasn
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 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 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. 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 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. 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, 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 informationHeadlines. Thursday, 13 July Rates: Counting down to tomorrow s US eco data. Currencies: Dollar stays soft post-yellen.
Rates: Counting down to tomorrow s US eco data Today s eco calendar won t inspire trading. In light of most recent events (Yellen s Testimony), we expect that core bonds could correct somewhat higher without
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. Friday, 10 June Rates: New all-time lows. Currencies: Dollar rebounds in choppy trade. Calendar
Rates: New all-time lows 10-yr yields reached new all-time lows in the UK, Germany and Japan. Core bond sentiment remains positive, but we re entering overbought conditions. Today s eco calendar remains
More informationCurrencies: ECB and Comey hearing to decide on nest USD move?
Rates: Downward potential Bunds on ECB meeting? Bunds gained significant ground in the run-up to today s ECB meeting, suggesting that the market reaction could be asymmetric with lower Bunds (higher rates)
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. 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
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