Markets. Rates. Wednesday, 10 January 2018
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- Nigel Turner
- 5 years ago
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1 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 its intentions to hike rates times in 8. We expect the next hike in March. The market implied probability is 8%. US Libor rose further as the Fed continues its tightening cycle. Rate markets currently discount hikes in 8, less than the Fed s median forecast. Euribor rates remain flat as a first ECB hike isn t expected before 9 Swap Rates (%),,, -, EURIBOR M,, -, -, -, -, EUR Yr Swap Rate US Yr Swap Rate October ECB Meeting (6/) Today (/) December ECB Meeting (/) The US -yr swap rate reached its highest level since, boosted by the US tax reforms and the Fed s normalisation process. The European -yr swap rate trades near the upper end of its sideways range, but has upward potential given strong current growth momentum and expected anticipation on ECB policy normalisation. The Euribor m strip curve steepened as criticism on the forward guidance of APP grows louder. Several ECB governors think that September 8 should mark the end of net purchases. Indicating that the programme could still be extended isn t necessary, they argue. P.
2 Wednesday, January 8,7 Euro Swap Curve Intra-EMU Yield Spreads (Yr),,,,7,,, -, //8 8//7 8//7 Spain Italy Belgium France EMU swap curve bear steepens. The EMU grew at its fastest pace last year and is expected to beat trend growth in coming years. Italian BTP s underperform after the Italian president dissolved parliament and called for early elections on March. Current opinion polls suggest that a political deadlock is the most likely outcome. Centre-left, centre-right and SM are neck-and-neck Currencies EUR/USD EUR/GBP,,,,,,9,9,8,8,7,7,6 EUR/USD: the dollar traded soft at the end of 8. US tax reform and a continuation of the Fed s normalisation process were not enough to support the dollar. The EUR/USD. range top was tested, but no break occurred suggesting that a EUR/USD topside break won t be easy short-term. EUR/GBP stays in a sideways range. The market doesn t expect an additional BoE rate hike anytime soon even as inflation surpassed %. The first part of the Brexit deal also failed to convince sterling investors. P.
3 Wednesday, January 8 USD/JPY EUR/CZK 9 8 7, 7 6, 6, USD/JPY held a relatively tight sideways pattern during the last quarter of 7 despite rising interest rate support for the dollar. Early 8, investor speculation that the BOJ might also prepare a less easy policy supported the yen. EUR/CZK: The koruna continued the gradual rise which started after the CNB gave up its koruna cap in April 7. The CNB raised its policy rate a second time in November and signalled that the CZK might get additional interest support this year. EUR/PLN,6,,,,,,9 EUR/HUF 9 The zloty rebounded since October. Markets assume that ongoing strong growth and tentative signs of higher prices and wages will force the NBP to raise interest rates earlier than expected. EUR/HUF: The forint initially decoupled from the rebound of the Czech koruna and the zloty as the MNB maintained its easing bias despite a solid economic performance. The forint started a catching up move in December. P.
4 Wednesday, January 8 Others Brent Crude Oil (Future) - ($/barrel) Gold (Future) - $/ounce 7 6 Brent prolonged its rally and is about to match the highest level since May, supported by an extension of OPEC production cuts, strong growth and weaker dollar. The gold price staged an impressive rebound since mid- December, returning north of $/ounce. CRB Commodity Index 8 Euro Stoxx Global commodity prices resumed their uptrend supported by global growth momentum. Equities started the year extremely well, extending the positive trend since mid-6. European stocks aren t worried about policy normalisation yet, growth is strong and earnings are good. P.
5 Wednesday, January 8 Economic Overview Eurozone Euro zone GDP (Q/Q contribution to growth) Euro zone PMI Manufacturing (blue) & Services (red),, -, - -, government household gross fixed capital formation change in inventories exports imports GDP Q/Q EMU growth marginally eased in Q, to.6% Q/Q from an upwardly revised.7% Q/Q in Q. The Y/Y measure increased though to.6% from.% previously. It was the 8 th quarterly increase, showing the recovery is on solid footing. The composition was attractive with strong investment and consumption Sentiment in the euro zone manufacturing sector hit a multiyear high (blue; 6.6). The services PMI (red; 6.6) increased as well, boding very well for Q 7. The forward looking new orders component of the composite measure rose to the highest since April, suggesting that momentum will remain strong at the start of 8. Euro zone Inflation Euro zone Unemployment,, 9, , - - CPI - Y/Y (Left axis) Core CPI - Y/Y (Left axis) EC Industrial confidence - selling price expectations (Right axis) EMU headline inflation fell to.% Y/Y in December. Core inflation unexpectedly stabilized at.9% Y/Y. No signs that inflation is sustainably moving towards the ECB target (%) but the selling price expectations component of EC industrial confidence might be an omen. Services Confidence - Employment Expectations(Left axis) Industrial Confidence - Employment Expectations (Left axis) Unemployment Rate (Right axis) The euro zone unemployment rate fell to 8.7%, matching the lowest level since January 9. Survey evidence suggests that the decline will continue. P.
6 Wednesday, January 8 Euro zone Industrial Production Euro zone Retail Sales -,,,,, Industrial Production Y/Y Industry is doing well in EMU and running around or above % Y/Y for six straight months (May-October). German data suggest more strength in November. Retail Sales Y/Y November EMU retail sales printed at a strong.% M/M and.8% Y/Y in November. The figure to some extent countered the unexpectedly large decline in October. Positive Surprise,, Negative Surprise -, - -, Surprise index: measures the difference (in standard deviations) between the (median) Bloomberg consensus and the actual outcome of EMU economic data. Euro zone economic data remained strong and mostly beat the expectations, confirming strong EMU growth momentum P. 6
7 Wednesday, January 8 US US GDP (Q/Q Annualized - contribution to growth) 6, US ISM Manufacturing - Services 6 7,, , 8 Personal Consumption Fixed Investments Change in inventories Net Exports Government Consumption US GDP Q/Q Annualized ISM non-manufacturing (Left Axis) ISM Manufacturing (Left Axis) NFIB Small Business Optimism (Right Axis) The US economy grew a stronger-than-expected.% Q/Qa in Q, slightly beating Q s.% Q/Qa. The composition was worse though as personal consumption slowed and inventories rose. Strong investment and exports were positives. The US non-manufacturing ISM (.9) and NFIB small business optimism (.9) declined and disappointed last month. The manufacturing ISM (9.7) is holding strong in line with global manufacturing PMI s. New orders and price components in the manufacturing ISM were very good US Inflation,,,, -, - US Unemployment 6,7,,,7,, - Manufacturing ISM - prices paid index (Left Scale) US CPI Y/Y (Right Scale) US Core CPI Y/Y (Right Scale) Change in private payrolls (Left Scale) US unemployment rate (Right Scale) US headline inflation rose to.% Y/Y in November from.% Y/Y in October, while the core reading returned to.7% Y/Y. Following a decline of inflation in the first half of 7, inflation has bottomed. A rise in core inflation would please the Fed. December payrolls disappointed (8K) while the unemployment rate stabilized at.%. AHE printed in line with consensus (.% M/M). The labour market gradually becomes red hot, but the absence of faster wage growth remains puzzling. P. 7
8 Wednesday, January 8 US Production US Retail Sales,,, -, - 6 US Manufacturing Production Y/Y Industrial production returned to normal levels in November (.% M/M) after the post-hurricane surge in October (.% M/M). On a yearly basis, production stabilized at.% Y/Y. US retail sales climbed by.8% M/M in November after a.% increase in October. The firm advance bodes well for consumer spending in Q. Sales in the retail control group increased at a three-month annualized pace of 6.6% Y/Y, the most since June.. Positive Surprise,, -, - -, - Surprise index: measures the difference (in standard deviations) between the (median) Bloomberg consensus and the actual outcome of US economic data. US economic data: Positive surprises outnumbered negative ones in December. The early January releases mostly disappointed P. 8
9 Wednesday, January 8 Contacts Brussels Research (KBC) Global Sales Force Mathias van der Jeugt Brussels Peter Wuyts + 7 Corporate Desk Institutional Desk France Dublin Research London Austin Hughes Singapore +6 Shawn Britton Prague Research (CSOB) Jan Cermak Prague + 6 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 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. 9
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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 informationRates: Chinese President reaches out to US to unlock trade conflict
Rates: Chinese President reaches out to US to unlock trade conflict Risk sentiment improved overnight after Chinese President XI Jinping called in favour of a more open Chinese economy and lowering import
More informationHeadlines. Thursday, 23 November Rates: Solely EMU to watch out for. Currencies: Dollar nears/tests important support levels.
Thursday, 23 November 2017 Rates: Solely EMU to watch out for Today s eco calendar focuses on EMU with US markets closed for Thanksgiving. EMU PMI s are expected to remain at very strong levels, which
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: US stays in the defensive as markets ponder Fed rate hike intentions
Rates: US yield support holds amid sell-off on stock markets Tuesday, 20 November 2018 US Treasuries ended near opening levels, finding a balance between technical considerations (key US yield support)
More informationThursday, 15 March 2018 Headlines Concerns over the prospect of a trade war with China weighed on WS yesterday, Asian stock markets trade mixed
Rates: Risk aversion puts support levels in yield at risk US politics-related risk aversion fills the eco/event void ahead of next week s FOMC meeting. Core bonds profit with the German 10-yr yield at
More informationCurrencies: Euro remains in the defensive, but losses remain modest
Rates: Italian credit spread returns above 300 bps Risk sentiment on stock markets and developments in Italy will probably remain today s main trading themes. Main EMU equity indices are sliding towards
More informationCurrencies: EUR/USD stabilizes, USD/JPY rebound on soft BOJ inflation outlook
Rates: Core bonds eyeing global risk sentiment Global core bonds gained ground yesterday as ongoing growth concerns and fading positivism about US-Sino trade talks put a halt to the risk rally of late.
More informationCurrencies: EUR/USD slide continues as doubts on EU economy continue to weigh
Rates: Stuck in no man s land Global core bonds are stuck in no man s land following last month s decision by both the ECB and the Fed to stay side-lined in assessment mode for the next months. More range-bound
More informationHeadlines. Tuesday, 11 September Rates: Technically driven trading in absence of data/events
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
More informationCurrencies: Will payrolls be strong enough to restore a better USD bid?
Friday, 07 April 2017 Rates: Risk off after US attack; focus on payrolls now US Treasuries spiked higher overnight after the US conducted missile strikes against Syria, retaliating the gas attack earlier
More informationThursday, 06 October 2016 Headlines US Equities ended with modest gains yesterday,
Rates: ECB Tapering rumours prime on strong US ISM Bunds sharply underperformed US treasuries yesterday, still on the tapering story. Attention will now go to tomorrow s US payrolls release, suggesting
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: Higher oil pushed Bunds lower, but US Treasuries resilient
Rates: Higher oil pushed Bunds lower, but US Treasuries resilient It looks like markets are awaiting the FOMC meeting before giving core bonds an eventual new direction. Core bonds remain under pressure,
More informationRates: Will the sell-off take a pause or will strong US data hit especially US bonds?
Rates: Will the sell-off take a pause or will strong US data hit especially US bonds? The US ISM could be stronger than expected today, but traders might be hesitant to react ahead of tomorrow s holiday.
More informationCurrencies: Will payrolls give a clear enough signal for a directional USDD move?
Rates: US 10-yr yield retests lost support US payrolls are expected to rebound following a dismal February figure. This week s US eco data managed to ease global growth worries somewhat with the US 10-yr
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 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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