Rates: ECB straightjacketed, Turkish CB could influence risk sentiment
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- Geoffrey Willis Thornton
- 5 years ago
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1 Rates: ECB straightjacketed, Turkish CB could influence risk sentiment The ECB meets today, but normally won t deliver fireworks. Rumours suggest small downward revision to the growth scenario, but that s probably insufficient to really boost Bunds. Italian BTP s might return in the fire line as FM Tria threatened to quit over the 2019 budget. The Turkish central bank meeting could influence global risk sentiment via EM FX. Currencies: Dollar and sterling still lack a clear story Yesterday, EUR/USD rebounded temporarily on easing trade tensions. However, multiple sources of (global and EMU) uncertainty continue to provide downside protection to the dollar. Today s ECB and BoE meetings probably won t change the picture for USD and GBP trading. USD traders will continue to look for guidance from global risk sentiment. Calendar Headlines US equity markets could just hold their head above water on Wednesday with the exception of NASDAQ (-0.23%). Asian markets opened mixed today, with Japan outperforming the bunch and China noting losses. US Treasury secretary Steven Mnuchin is pushing to meet Liu He, a top Chinese economic official, in an attempt to defuse further escalation of the trade war before President Trump imposes tariffs on another $200bn of Chinese imports. 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 Federal Reserve Governor Brainard has indicated that the Fed could maintain gradual interest rate hikes for the next year or two, possibly to more than 3%. She said the labour market is very strong and growth is likely to remain solid. Canada s Freeland will not return to Washington today to continue negotiations over a renewal of Nafta, as more preparations are needed. Mexico repeated it is prepared to pursue a trade deal with the US without Canada. UK Brexit Minister Dominic Raab said yesterday that a deal between the UK and EU is within reach. He also confirmed that if a no deal scenario would take place, the UK would not pay the terms of the financial settlement. Australia s labour market remains very strong in August, with 44k new jobs. The rise in full time jobs (+34k) is the biggest contributor. Unemployment rate remains at record low (5.3%) and participation rate rises to 65.7%. Today s US eco calendar is interesting, with CPI s and unemployment numbers in the US. Central banks in the UK (BoE), in Europe (ECB) and in Turkey are holding their September meeting. Fed s Bostic speeches tonight. P. 1
2 Rates More outperformance of German Bund vs US Note future US yield -1d 2 2,75 0,00 5 2,86-0, ,96-0, ,11-0,01 DE yield -1d 2-0,55-0,01 5-0,16-0, ,41-0, ,09-0,02 Global core bond sentiment improved yesterday. German Bunds outperformed US Treasuries. The rise occurred gradually. Rumours about a potential downward revision to today s new ECB growth forecasts might have been at play. The ECB might even shift its risk assessment from broadly balanced to downward according to the same people familiar with the matter. The eco calendar contained disappointing, but outdated, July industrial production data and lower-than-expected August US PPI. The US Treasury s 10-yr note auction went well. Washington based Fed governor Brainard argued in favour of hiking beyond the current estimate of the neutral rate (3%) and expects the current tightening cycle to last into Her comments helped to explain the underperformance of the front end of the US yield curve. Daily changes ranged between +0.4 bps (2-yr) and -1.5 bps (30-yr). The German yield curve bull flattened with yields 0.8 bps (2-yr) to 2.1 bps (30-yr) lower. 10-yr yield spread changes vs Germany ranged between -1 bp (Portugal) and +3 bps (Italy). Asian stock markets started strong this morning, boosted by talks that the US has invited Chinese officials to restart trade talks. Risk sentiment is faltering again though as we enter the final Asian trading hour(s). The US Note future trades a tad weaker. Italian newspaper La Stampa reports that Italian FM Tria threatened to resign in the wake of the struggle over next year s budget. 5SM leader Di Maio yesterday said that he wants 10bn instead of 5bn to be allocated to a higher basic income, putting Tria s pledge to align with EU budget rules again in danger. We expect BTP s to suffer somewhat at the start of dealings which could give some support to the Bund as well. The ECB meets today. With the ECB s policy straightjacketed at least until next year s Summer, we don t expect any lasting impact even if the Bund could receive some short term support in case of significant downward revisions to the growth scenario. We hold a close eye on today s Turkish central bank meeting as well. Last week, they pledged to finally hike interest rates, but will the rate hike be sufficiently large to further ease tensions in TRY? The market reaction on TRY could influence other EM FX and general risk sentiment. The US eco calendar contains CPI inflation (0.3% M/M & 2.8% Y/Y expected), weekly jobless claims, speeches from several Fed governors and a 30-yr Bond auction. Markets might especially be sensitive to inflation running further away from the Fed s 2% target. We expect the Bund s outperformance vs US Treasuries to last. Technically, both the German 10-yr yield and the US 10-yr yield moved in the upper part of their sideways trading ranges, respectively between 0.3% and 0.5% and between 2.8% and 3%. We advise to play these ranges. Af German 10-yr yield: 0.3%-0.5% sideways range US 10-yr yield: Closing in on a test of 3% P. 2
3 Currencies US CPI data and CB s to guide global FX trading R2 1,2155-1d R1 1,1996 EUR/USD 1,1626 0,0020 S1 1,1510 S2 1,1448 R2 0,9033-1d R1 0,8968 EUR/GBP 0,8914 0,0009 S1 0,8628 S2 0,8548 Yesterday, there was no dominant story for global trading. European equities outperformed Asia and the US but gains remained modest. EMU July production was weak. US PPI was also softer than expected. EUR/USD initially lost a few ticks. Later, markets outside the US were supported by headlines that the US and China might resume trade talks. The dollar weakened. EUR/USD closed at USD/JPY traded in line with overall USD softness and closed at In a broader perspective, EUR/USD and USD/JPY are holding recent tight ranges. Overnight, the hope of a restart of the US-China trade talks caused a rebound of Asian equities on recent steep decline. The move was supported by strong Japanese machinery orders. EM currencies also succeed a broad-based rebound. EUR/USD ( area) maintains yesterday s gain. USD/JPY (111.40) is trading marginally higher on the risk rebound. AUD/USD rebounded to the high 0.71 area, on overall dollar weakness and on very strong August job growth in Australia. Today, the US CPI data will be published (headline expected 2.8Y/Y from 2.9%; core stable at 2.4%). An upward surprise probably wouldn t go unnoticed on (FX) markets. However, the focus might be on the ECB policy meeting. The decision of the Turkish central bank might have consequences for broader FX. ECB staff economic forecast might bring a mixed story (tentative lower growth but higher inflation). We don t expect the ECB to change policy guidance in a profound way. Budget talks in Italy and headlines on global trade remain wildcards for global (FX) trading. Of late, the USD, including EUR/USD, mostly held tight ranges. Overnight, global trends (EM, trade talks) turned slightly in the disadvantage of the USD, but we are not convinced that this more positive global sentiment (and thus a softer USD) will persist. EUR/USD is locked in a tight / consolidation pattern. We don t anticipate a break of this range yet. MT we assume that fundamentals continue give the USD downside protection. Yesterday, EUR/GBP hovered close to, mostly slightly north of 0.89 as investors faced conflicting headlines on Brexit (positive tone from the EU, ongoing opposition for May from headline Brexiteers). We expect this pattern to continue today. The BOE will announce its policy decision. However, no change is expected after last month s rate hike. We maintain the view that real brexit progress is needed to justify a sustained comeback of sterling. EUR/USD: no market theme dominant enough to break EUR/USD stalemate EUR/GBP: diffuse Brexit headlines are leaving sterling in a limbo P. 3
4 Calendar Thursday, 13 September Consensus Previous US 14:30 CPI MoM/YoY (Aug) 0.3%/2.8% 0.2%/2.9% 14:30 CPI Ex Food and Energy MoM/YoY (Aug) 0.2%/2.4% 0.2%/2.4% 14:30 Initial Jobless Claims 210k 203k 14:30 Continuing Claims 1710k 1707k 14:30 Real Avg Hourly/Weekly Earnings YoY (Aug) %R/0.1% Japan 01:50 PPI MoM/YoY (Aug) 0.0%A/3.0%A 0.4%R/3.0%R UK 13:00 Bank of England Bank Rate 0.75% 0.75% EMU 13:45 ECB Main Refinancing Rate 0.000% 0.000% 13:45 ECB Marginal Lending Facility 0.250% 0.250% 13:45 ECB Deposit Facility Rate % % Germany 08:00 CPI EU Harmonized MoM/YoY (Aug F) 0.1%/2.0% 0.0%/1.9% France 08:45 CPI EU Harmonized MoM/YoY (Aug F) 0.6%/2.6% 0.6%/2.6% Sweden 09:30 GDP QoQ/WDA YoY (2Q F) 0.9%/3.3% 1.0%/3.3% Events 11:00 Italy to Sell Bonds 13:00 BOE's Agents Summary of Business Conditions 14:30 ECB President Draghi Holds Press Conference in Frankfurt 15:30 ECB Publishes Macroeconomic Projections 16:00 Fed's Quarles Testifies to Senate Banking Committee (postponed) 19:00 US to Sell USD15 Bln 30-Year Bonds 19:00 Fed's Bostic Gives Speech on Economy and Monetary Policy P. 4
5 10-year Close -1d 2-year Close -1d Stocks Close -1d US 2,96-0,01 US 2,75 0,00 DOW 25998,92 27,86 DE 0,41-0,02 DE -0,55-0,01 NASDAQ 7954,229-18,24 BE 0,74-0,02 BE -0,45 0,00 NIKKEI 22821,32 216,71 UK 1,48-0,02 UK 0,79 0,00 DAX 12032,3 62,03 JP 0,11 0,00 JP -0,11 0,00 DJ euro ,6 14,94 IRS EUR USD GBP EUR -1d -2d USD -1d -2d 3y 0,00 2,98 1,23 Eonia -0,3710-0,0070 5y 0,31 2,99 1,37 Euribor-1-0,3710 0,0010 Libor-1 2,1479 0, y 0,92 3,03 1,58 Euribor-3-0,3190 0,0000 Libor-3 2,3343 0,0000 Euribor-6-0,2690 0,0000 Libor-6 2,5578 0,0000 Currencies Close -1d Currencies Close -1d Commodities Close -1d EUR/USD 1,1626 0,0020 EUR/JPY 129,36-0,19 CRB 193,36 1,69 USD/JPY 111,26-0,37 EUR/GBP 0,8914 0,0009 Gold 1210,90 8,70 GBP/USD 1,3045 0,0012 EUR/CHF 1,1289 0,0004 Brent 79,74 0,68 AUD/USD 0,7169 0,0050 EUR/SEK 10,4405-0,0539 USD/CAD 1,2998-0,0069 EUR/NOK 9,6047-0,0515 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
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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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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, 23 October Rates: Risk aversion to reign trading today? Currencies: dollar regains the benefit of the doubt.
Rates: Risk aversion to reign trading today? Asian stock market lose up to 2% overnight with risk aversion set to spill to European/US trading. Core bonds could profit with US Treasuries lagging German
More informationMarkets. Rates. Tuesday, 10 April 2018
Markets Tuesday, April 8 Rates,, -, - Policy Rates,,, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M The US central bank continued its tightening cycle, lifting rates by bps to.%.7%.
More informationRates: Have bond markets reached some kind of ST exhaustion move?
Rates: Have bond markets reached some kind of ST exhaustion move? Bond markets faced a sharp repositioning yesterday as investors adapted investments to the latest developments in Italy. German and US
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 informationRates: Inconclusive, low-volume trading as higher oil prices are ignored
Tuesday, 12 December 2017 Rates: Inconclusive, low-volume trading as higher oil prices are ignored A surge in oil prices has limited impact on other markets so far. Ahead of tomorrow s Fed meeting and
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. 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 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, 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. 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 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 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 informationMarkets. Rates. Tuesday, 16 October 2018
Markets Tuesday, 6 October 8 Rates,,, -, - Policy Rates,,, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M At its September meeting, the Fed raised rates with bps, dropped the reference
More informationMarkets. Rates. Thursday, 10 November 2016
Thursday, November 6 Markets Rates 6 - Policy Rates,8,6,, -, -, EURIBOR M / USD LIBOR M ECB FED BOE ECB Deposit EURIBORM USD LIBOR M While ECB and BOE are expected to keep rates unchanged for a longer
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. 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
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. Friday, 07 December Rates: Will calm return to (interest rate) markets?
Rates: Will calm return to (interest rate) markets? European equity markets had their worst performing day since the Brexit referendum in June 2016. Risk-aversion supported core bonds, pushing yields below
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 informationRates: Range-bound trading ahead of US debate and ECB meeting
Rates: Range-bound trading ahead of US debate and ECB meeting The final US presidential debate (tonight) and the ECB meeting (tomorrow) will likely dominate headlines amid a thin eco calendar (only US
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 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 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, 19 October Rates: Shun Catalan political risk. Currencies: EUR/USD resilient despite Catalan uncertainty.
Rates: Shun Catalan political risk Eco data and central bankers won t impact trading today. The Catalan-Madrid stand-off could escalate to a new phase. Cautiousness might be warranted. The Bund might profit
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 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 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
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