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 the year, but the Bank of England indicated more and faster tightening going forward. A second rate hike can now be expected in May. A third one perhaps already in November. US Libor rose further with markets aligning with the Fed s rate hike scenario. The balance of risks is even shifting in favour of rates hikes instead of. Euribor rates remain flat as a first ECB hike isn t expected before mid-9 Swap Rates (%),,, -, EURIBOR M,,, -, -, -, -, EUR Yr Swap Rate US Yr Swap Rate January ECB Meeting (/) Today (/) December ECB Meeting (/) The US -yr swap rate moved above.7% for the first time since. The latest upleg was inspired by rising inflation (expectations). Underlying growth momentum and the global normalisation turn remain at play as well. The European -yr swap rate rose above.% for the first time since mid-. The Euribor m strip curve bear steepened immediately after the January ECB meeting as ECB president Draghi hinted at the press conference that a first rate hike would be possible by mid-9 after first ending APP. The timing of that first hike was sooner than earlier anticipated by markets. P.
Thursday, February 8,7 Euro Swap Curve Intra-EMU Yield Spreads (Yr),,,,7,,, -, 6 7 8 9 //8 //8 //7 Spain Italy Belgium France EMU swap curve bear steepens. EMU eco data remain very strong and inflation expectations are trending higher. As the end of the ECB s monetary easing era nears, markets start positioning for higher rates. The Spanish -yr yield spread reached a post-crisis bottom after Fitch upgraded the country to A-. Italian BTP s remain resilient amid the uptick in volatility and the approaching general election.. Currencies EUR/USD EUR/GBP,,,,,,9,9,8,8,7,7,6 EUR/USD reached a new cycle high around.. Dollar weakness persists despite the rising interest rate differential in favour of USD. Trump s protectionist rhetoric weighted on the greenback. EUR/GBP stays in a sideways range, roughly between.87 and.9. A break of the downside didn t occur despite hawkish BoE-rhetoric as the difficult Brexit-process remains a drag on sterling. P.
Thursday, February 8 USD/JPY EUR/CZK 9 8 7, 7 6, 6, USD/JPY is the exponent of dollar weakness. The pair tests key support around 6.. Investors seem to challenge Japanese officials as they say that current levels of the yen don t warrant FX interventions. EUR/CZK: the CNB hiked its policy rate from.% to.7%. We expect two additional tightening moves during the year and a strengthening of the koruna towards EUR/CZK. Governor Rusnok sounded slightly dovish though after the policy meeting. EUR/PLN,6,,,,,,9 EUR/HUF 9 The Polish zloty lost some ground this month because of the uptick in market volatility and as the NBP downplayed normalisation expectations. Governor Glapinski delayed the expected timing of a first hike from the end of this year to next year. EUR/HUF: The forint trades stable between and already for a remarkable amount of time. The MNB continues pursuing an extremely easy policy despite strong underlying growth and inflation momentum. P.
Thursday, February 8 Others Brent Crude Oil (Future) - ($/barrel) Gold (Future) - $/ounce 7 6 Brent prolonged its rally piercing through $7/barrel for the first time since,, supported by an extension of OPEC production cuts, strong growth and weaker dollar. A correction occurred as US production rose to multiyear highs. The gold price hovers sideways this year between $ and $/ounce. For now, there s little (safe haven) support from the uptick in volatility. CRB Commodity Index 8 Euro Stoxx 6 7 6 8 Global commodity prices resumed their uptrend supported by global growth momentum before correcting lower. Picture and underlying drivers are more or less similar to the oil price. Equities started the year extremely strong, but a surge in volatility caused a correction with US stocks underperforming European ones. The higher volatility forced two short vol ETF s into liquidation. P.
Thursday, February 8 Economic Overview Eurozone Euro zone GDP (Q/Q contribution to growth) Euro zone PMI Manufacturing (blue) & Services (red),, -, - -, 6 6 9 8 7 6 government household gross fixed capital formation change in inventories exports imports GDP Q/Q EMU growth reached.6% Q/Q and.7% Y/Y in Q 7. The 7 growth rate was the strongest since 7 and EMU growth is expected to remain above trend in coming years. Sentiment in the euro zone manufacturing sector and services sector remains at very elevated levels. The combined composite PMI (8.8) suggests that the EMU economy enjoys its fastest growth pace in almost years. Euro zone Inflation Euro zone Unemployment,, 9, - - - 9 8, - - 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 January. Core inflation unexpectedly increased to.% 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 stabilized at 8.7%, matching the lowest level since January 9. Survey evidence suggests that the decline will continue. P.
Thursday, February 8 Euro zone Industrial Production Euro zone Retail Sales 6 -,,,,, Industrial Production Y/Y Retail Sales Y/Y Industry is doing well in EMU and running around or above % Y/Y for six straight months and even accelerating in Q 7. Retail sales remain very volatile, recording a.% monthly decline in December after a % increase in November. All categories apart from pharmaceuticals contributed negatively 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
Thursday, February 8 US US GDP (Q/Q Annualized - contribution to growth) 6, US ISM Manufacturing - Services 6 7,, 9-9 - 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 by.6% Q/Qa in Q, slightly below Q s.% Q/Qa. Personal consumption and investments made a strong positive contribution while net exports dragged. Business sentiment indicators remain at very high levels in the US as well. We pay especially attention to the manufacturing ISM s prices paid component, which surged to an incredibly high 7.7! 7 7 6 6 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 (.% Y/Y) and core inflation (.8% Y/Y) both stabilized while consensus expected a setback. Current inflation readings and rising inflation expectations both warrant a continuation of the Fed s tightening cycle. December payrolls beat expectations (k) while the unemployment rate stabilized at a multiyear low (.%). The US labour market keeps humming at a very healthy rate and tightness finally translates into higher wages (.9% Y/Y) P. 7
Thursday, February 8 US Production US Retail Sales,,, -, - 6 US Manufacturing Production Y/Y U.S. factory production rose for a fourth straight month in December (.9% M/M), capping the strongest quarter since and underscoring a resurgence in manufacturing that s primed for further advances US retail sales unexpectedly declined in January (-.%) and December receipts were revised lower (%), indicating consumer demand in the first quarter may cool. Retail-control group sales, which are used to calculate GDP were unchanged following a revised.% decrease in December.. 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: Most recent data (right hand) surprise again on the upside of expectations following a rather mixed period. P. 8
Thursday, February 8 Contacts Brussels Research (KBC) Global Sales Force Mathias van der Jeugt + 7 9 Brussels Peter Wuyts + 7 Corporate Desk + 7 8 Institutional Desk + 7 6 France + 7 6 Dublin Research London + 7 6 88 Austin Hughes + 66 6889 Singapore +6 Shawn Britton + 66 689 Prague Research (CSOB) Jan Cermak + 6 78 Prague + 6 Jan Bures + 6 7 Petr Baca + 6 7 Bratislava Research (CSOB) Marek Gabris + 966 889 Bratislava + 966 88 Budapest Research David Nemeth +6 8 9989 Budapest +6 8 99 8 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