srates: More outperformance of German Bunds vs US Treasuries? Currencies: US-Canada trade deal to support further USD gains against other majors?

Transcription

1 srates: More outperformance of German Bunds vs US Treasuries? The US, Mexico and Canada reached a last-minute agreement to revamp NAFTA. US equity futures gain ground, while the US Note future is a tad weaker. Today s eco calendar contains US eco data and Fed speakers, but we think sentiment will be the key trading theme. We expect more outperformance from Bunds, as the Italian situation remains precarious. Currencies: US-Canada trade deal to support further USD gains against other majors? In Friday, euro weakness prevailed as European assets suffered from the Italian budget deal. This morning, investors try to assess the meaning of the US-Canada trade deal for global (FX) trading. For now, it looks that the deal might be supportive for the dollar against other majors. Sterling traders keep a close eye at the Tory conference in Birmingham. Calendar Headlines US equity markets closed Friday s trading session almost unchanged. Chinese markets are closed for the week. Other Asian stock markets open the week mixed. US equity futures profit from the new NAFTA deal. Only hours before the deadline for the US and Mexico to send their trade agreement to Congress, Canada has joined the deal. The United States Mexico Canada Agreement ends months of uncertainty over trade in North America. 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 UK PM May has insisted that her Chequers blueprint for Brexit is not dead, but that she does not rule out making further concessions to the EU. Her comments came after Boris Johnson launched a fresh attack on the PM and her plan. US President Trump and the King of Saudi Arabia discussed the global oil supply after a slowdown in American drilling. Combined with the uncertainty from Iran, the oil price rose to its highest level since 2014, with $83.15 p/b. Japanese business confidence (manufacturing) unexpectedly dropped from 21 in Q2 to 19 in Q3 while an increase to 22 was expected. Future forecasts fall as well for manufacturing, but increase for non-manufacturing from 21 to 22. Italy s Finance Minister Tria has insisted his country will be able to reduce public debt despite the new budget agreement to raise the deficit to 2.4% next year. He said growth in GDP will help to keep public finances under control. Today s eco calendar contains the ISM manufacturing numbers in the US and the Markit PMI Manufacturing index in the UK. Federal Reserve governors Bostic, Kashkari and Rosengren speak as well as ECB Villeroy. P. 1

2 Rates More underperformance of US Treasuries? US yield -1d 2 2,82-0,01 5 2,96 0, ,06 0, ,21 0,02 DE yield -1d 2-0,52-0,03 5-0,08-0, ,47-0, ,10-0,04 Global core bonds ended mixed on Friday with German Bunds significantly outperforming US Treasuries. The first upleg resulted from Italian-related safe haven flows (2.4% budget deficit in 2019, 2020 and 2021). The Bund gained more pace after disappointing EMU core inflation which clinched with ECB President Draghi s comments about vigorous core inflationary pressures ahead. Two technical elements the German 10-yr yield s return below 0.5% and end-of-month extension buying completed the story. German yields declined by 2.9 bps to 5.9 bps on a daily basis with the belly of the curve outperforming. The US yield curve steepened marginally with changes ranging between -0.8 bps (2-yr) and 2.3 bps (30-yr). Peripheral yield spreads vs Germany widened by 32 bps for Italy, 20 bps for Greece, 7 bps for Portugal and 5 bps for Spain. Asian stock markets are mixed overnight with Korea again underperforming and China closed for a whole week. US equity futures are in better shape while the small decline in the US Note future also hints at a positive European market opening. Investors take the new NAFTA agreement (including Canada, dubbed USMCA) into stride while it remained quiet about Italy (no rating downgrades for now). Brent crude continues its march higher on supply risks, cruising through $83/barrel. Today s eco calendar contains the US manufacturing ISM for September. Consensus expect a decline from 61.3 to 60.0 after last month s sharp rise. The indicator remains at very strong levels, despite the predicted setback. The US calendar remains interesting later this week with non-manufacturing ISM, ADP employment and payrolls. Fed Kashkari (arch-dove), Bostic (modest dove) and Rosengren (modest hawk) are scheduled to speak, but their views are known. ECB Villeroy takes parole as well. We expect sentiment to be today s main trading theme. US Treasuries (less trade uncertainty, positive comments on North Korea) are expected to underperform German Bunds (Italian budget). We don t expect an immediate comeback of BTP s with Italian FM Tria s job still at risk, rating downgrades looming and a clash with Europe ahead. From a technical point of view, the US 10-yr yield sits in the 3%-3.12% range and we eye a new test of the upper bound. The German 10-yr yield s attempt to break above 0.5% failed last week, triggered by Italian-related safe have flows. We expect some neutral short term action ahead. Af German 10-yr yield failed to close above key resistance last week following Italian-related safe haven flows US 10-yr yield: short term trading rang between 3% and 3.12%. P. 2

3 Currencies US-Canada deal to support further USD gains? R2 1,2155-1d R1 1,1996 EUR/USD 1,1604-0,0037 S1 1,1510 S2 1,1448 R2 0,91-1d R1 0,9052 EUR/GBP 0,8904 0,0003 S1 0,8628 S2 0,8548 On Friday, the Italian budget agreement allowing the 2019 deficit to rise to 2.4% revived investor worries on the county s debt sustainability. Italian and European equities nosedived, Italian spreads widened and the euro was sold. EUR/USD touched an intraday low around Sentiment on risk turned less negative as US investors got involved. US data were slightly softer than expected but with no meaningful impact the dollar. EUR/USD finished the day at (from ). USD/JPY didn t suffer from the Italian driven risk-off and extended its established uptrend closing the day at (from ). Overnight, Chinese markets are closed. The BOJ quarterly Tankan report was mostly on the soft side of expectations but still suggests a decent level of economic activity. However, global trading is dominated by headlines that the US and Canada reached a new trade deal, replacing Nafta. The news propels the Canadian dollar (USD/CAD area) and to a lesser extent the Mexican peso. US equity futures are jumping higher. USD/JPY is nearing the 114 mark. For now, this risk-on sentiment doesn t help the euro. EUR/USD (1.16 area) is losing a few ticks. Today, the US manufacturing ISM is expected to ease slightly from 61.3 to 60. A softening after last month s sharp rise won t change markets (and the Fed s) positive assessment on the economy. The US-Canada trade agreement removes a regional factor of uncertainty. It might be slightly USD supportive. Especially, USD/JPY stays in remarkably good shape. For EUR/USD, question is whether/how fast uncertainty on Italy will recede. In a day-to-day perspective, the dollar apparently still has better cards compared to the euro. Next intermediate EUR/USD support comes in at (September low). The technical picture of USD/JPY is constructive, but we are reluctant on yen shorts as LT Japanese yields remain under upward pressure. Yesterday, sterling again tentatively followed the intraday price moves of the euro and the dollar, but there was some underlying GPB-softness, too. EUR/GBP closed the session little changed at Today, the UK August lending data and the manufacturing PMI will be published. However, markets will keep a close eye at the Tory conference in Birmingham. For now, there is no indication that the internal rift in the UK government will end soon. In this context, we don t expect any protracted GBP gains anytime soon. EUR/USD: topside test rejected first intermediate support. EUR/GBP: will Tory conference unlock the Brexit and GBPstalemate? P. 3

4 Calendar Monday, 1 October Consensus Previous China All week Financial markets closed for National Day US Wards Total Vehicle Sales (Sep) 16.80m 16.60m 16:00 Construction Spending MoM (Aug) 0.4% 0.1% 16:00 ISM Manufacturing (Sep) :00 ISM Employment (Sep) :00 ISM Prices Paid (Sep) :00 ISM New Orders (Sep) Japan 01:50 Tankan Small/Large Mfg Outlook (3Q) 11A/19A 12/21 01:50 Tankan Small/Large Non-Mfg Outlook (3Q) 5A/22A 5/21 02:30 Nikkei Japan PMI Mfg (Sep F) UK 10:30 Net Consumer Credit (Aug) 1.3b 0.8b 10:30 M4 Money Supply MoM/YoY (Aug) %/2.1% 10:30 M4 Ex IOFCs 3M Annualised (Aug) % 10:30 Markit UK PMI Manufacturing SA (Sep) EMU 10:00 Markit Eurozone Manufacturing PMI (Sep F) :00 Unemployment Rate (Aug) 8.1% 8.2% Germany 08:00 Retail Sales MoM/YoY (Aug) 0.5%/1.6% -1.1R%/0.8% Italy Budget Balance (Sep) b 10:00 Unemployment Rate (Aug P) 10.5% 10.4% Belgium 11:00 Unemployment Rate (Aug) % Events 15:02 Fed's Bostic Speaks on Economic Development 16:50 BOE's Tenreyro Chairs Panel in London 17:00 Fed's Kashkari Speaks in Minnetonka, Minnesota 18:15 Fed's Rosengren Speaks on the U.S. Outlook and Monetary Policy 18:30 ECB Villeroy speaks at event in Paris 30SEP-03OCT UK s Conservative Party Conference P. 4

5 10-year Close -1d 2-year Close -1d Stocks Close -1d US 3,06 0,01 US 2,82-0,01 DOW 26458,31 18,38 DE 0,47-0,06 DE -0,52-0,03 NASDAQ 8046,353 4,39 BE 0,83-0,04 BE -0,44-0,03 NIKKEI 24245,76 125,72 UK 1,57-0,02 UK 0,82-0,01 DAX 12246,73-188,86 JP 0,13 0,00 JP -0,11 0,00 DJ euro ,2-50,59 IRS EUR USD GBP EUR -1d -2d USD -1d -2d 3y 0,07 3,05 1,28 Eonia -0,3510 0,0140 5y 0,39 3,07 1,44 Euribor-1-0,3710 0,0000 Libor-1 2,2606 0, y 0,99 3,12 1,66 Euribor-3-0,3180 0,0000 Libor-3 2,3984 0,0024 Euribor-6-0,2680 0,0000 Libor-6 2,6039 0,0034 Currencies Close -1d Currencies Close -1d Commodities Close -1d EUR/USD 1,1604-0,0037 EUR/JPY 131,93-0,06 CRB 195,16 0,99 USD/JPY 113,7 0,32 EUR/GBP 0,8904 0,0003 Gold 1196,20 8,80 GBP/USD 1,3031-0,0048 EUR/CHF 1,1398 0,0022 Brent 82,73 1,35 AUD/USD 0,7224 0,0016 EUR/SEK 10,316 0,0069 USD/CAD 1,2908-0,0135 EUR/NOK 9,4543-0,0385 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