Rates: US and German 10-yr yields at/approaching 1 st resistance The US 5-yr yield pierced through the upper bound of sideways trading range in place since June on Friday, while the US 10- yr and 30-yr yields tested similar resistance. Today s eco calendar features no strong triggers to force a break. German Bunds could underperform in technical trading. The German 10-yr yield is gradually moving towards 0.5% resistance. Currencies: dollar to maintain benefit of the doubt as trade tensions resurface? On Friday, EUR/USD couldn t maintain a constructive momentum. The 1.1730/51 resistance remains firmly in place. Today, trade tensions might again become the dominant driver for FX trading as markets expect the US president to raise tariffs on China again. In the recent past, this environment often supported the dollar. Calendar Headlines US equity markets ended mixed on Friday with only marginal gains/losses (+/- 0.05%). Asian markets lose ground with China suffering hard from new US tariff threats. Japanese markets are closed. US President Trump has instructed to proceed with additional tariffs on Chinese products. Talks between the countries, aimed to ease trade tensions, are now at risk as China indicated not to participate in case of new tariffs. 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 At a G20 meeting in Argentina on Friday, the trade and investment ministers said in a joined statement that there is an urgent need to improve the World Trade Organization to counteract growing trade tensions around the world. The EU is discussing a new option for the Irish border. Instead of putting EU inspectors at the border, they would consider to allow British officials in charge of checking goods that are headed for Northern Ireland. Greek Finance Minister Tsakalotos said that his country is planning to further loosen capital controls soon, in a move to complete the second pillar of regulations, concerning cash withdrawals and the opening of bank accounts. The central bank of China has lent $38.5bn to financial institutions through its one-year medium-term lending facility (MLF), at unchanged rates. The move was surprising, as no MLF loans were due to mature this morning. Today s US eco calendar is very thin, with only the Empire Manufacturing gauge for September in the US. For the EMU,we receive the final inflation numbers of August and ECB s Coeuré and Praet speak. Belgium taps the bond market. P. 1
Rates US 10-yr yield tests 3% resistance US yield -1d 2 2,78 0,02 5 2,90 0,03 10 3,00 0,03 30 3,13 0,02 DE yield -1d 2-0,54 0,00 5-0,13 0,02 10 0,45 0,03 30 1,11 0,02 Global core bond slid into the weekend last Friday. ECB President Draghi s upbeat comments at Thursday s policy meeting still resonated. US eco data (retail sales, industrial production and Michigan consumer confidence) were mixed, but didn t leave a stamp on trading. US yields increased by 2.1 bps (2-yr) to 3.1 bps (5-yr). Technically, the US 2-yr yield set a new cycle top. The US 5-yr yield broke above the 2.88% July top and is heading for a test of this year s high around 2.95%. The US 10-yr yield tested the upper bound of the sideways trading range of the past 4 months around 3%. The US 30-yr yield did the same at 3.15%. German yields added 0.4 bps (2-yr) to 2.8 bps (10-yr) on a daily basis. 10-yr yield spread changes vs Germany ended narrowly mixed with Greece underperforming (+4 bps) and Portugal outperforming (-4 bps). Asian stock markets lose ground this morning with China (-1%) underperforming. Japan is closed. Last week s initiative by US Treasury Secretary Mnuchin to restart high level trade talks in Washington this week suffered a blow. Chinese officials said the meeting was off if US President Trump pushed through with unveiling tariffs on $200bn Chinese goods this week. The US Note future trades marginally higher. Today s eco calendar only contains the US empire manufacturing survey. Consensus expects a modest decline, from 25.6 to 23, for the regional business sentiment indicator in September. We have no reason to expect US eco data strength to grind to a halt, but the market impact will likely be minor. ECB Coeuré and Praet are scheduled to speak. Coeuré is already one of the more hawkish members of the ECB board and chief economist Praet recently turned more confident in rising inflationary pressures. We expect their message to be in line with the one of President Draghi last week. Overall, we expect last week s trading trends to continue. Bunds could underperform US Treasuries as we see no trigger yet for a clean break above 3% resistance. The German 10-yr yield is gradually approaching the 0.5% upper bound of the 0.3%-0.5% range. This week s eco calendar remains rather thin with EMU PMI s on Friday the main event. However, event risk looms large with US/Chinese trade talks and the September 20 Salzburg Summit on Brexit. The Belgian debt agency holds an OLO auction today. OLO 79 (0.2% Oct2023), OLO 85 (0.8% Jun2028), OLO 78 (1.6% Jun2047) and OLO 83 (2.25% Jun2057) are on offer for a combines 3.4-3.9bn. Raising the top amount would imply that that Belgium nearly reached this year s funding goal. (currently 26.39bn raised from 31bn target). German 10-yr yield: moving higher in 0.3%-0.5% sideways range US 10-yr yield: First test of 3% area failed P. 2
Currencies Trade tensions to support the dollar again? R2 1,2155-1d R1 1,1996 EUR/USD 1,1625-0,0065 S1 1,1510 S2 1,1448 R2 0,9033-1d R1 0,8968 EUR/GBP 0,8895-0,0025 S1 0,8628 S2 0,8548 On Friday, the dollar started the session on a soft footing as global risk sentiment remained positive. The euro maybe still felt some support after rather upbeat comments from ECB s Draghi on Thursday. EUR/USD filled bids in the 1.1720 area but a test of the 1.1733 resistance didn t occur. US August retail sales disappointed. The dollar tried a shy down-move upon the release, but the topside in EUR/USD proved tough. USD bulls soon came again in control. Later, market optimism eased on headlines that Trump might impose additional import tariffs on China soon. EUR/USD finished at 1.1625. USD/JPY closed the week at 112.04. This morning, Japanese markets are closed. Asian equities are mostly trading in negative territory as fear on an escalation in the China-US trade war is returning to the forefront. EUR/USD hovers in the 1.1630 area. USD/JPY is holding near 112. Today, the eco calendar is thin. In the US, the Empire manufacturing index is expected to ease slightly from 25.6 to 23, but this still indicates healthy growth. Global FX trading will probably again be dominated by the headlines on trade policy. Rumours suggest that the US president could announce additional tariffs as soon as today. Of late, the reaction of markets to further steps in the US-China trade war was often modest. Even so, a further escalation will probably still trigger a standard risk-off reaction. EM-currencies and the yuan might come under pressure. The impact on EUR/USD might be more modest, but the dollar might still maintain the benefit of the doubt. From a technical point of view, EUR/USD neared the 1.1733/51 resistance, but no real test occurred, keeping EUR/USD in the established consolidation band. For now, we don t see a trigger for a break. A decline below the 1.1530 area would indicate that the dollar is gaining some momentum. On Friday, EUR/GBP mostly hovered in a tight range in in the low 0.89 area. Sterling gained a few ticks at the end of the day, with EUR/GBP closing at 0.8895. Poltical comments over the weekend suggest that the UK and the EU are stepping up effords to reach a deal. Key question remains whether PM May can convince enough pro-brexit members of her party. For now, sterling is gaining some momentum, but we don t expect the move to go very far as long as there is no clear indication that PM May will receive enough political backing. EUR/USD: 1.1733/51 resistance looks solid, for now EUR/GBP: sterling gaining slightly ground as tone in EU-UK talks turns more cooperative P. 3
Calendar Monday, 17 September Consensus Previous US 14:30 Empire Manufacturing (Sep) 23.0 25.6 UK 01:01 Rightmove House Prices MoM/YoY (Sep) 0.7%/A1.2%A -2.3%/1.1% EMU 11:00 CPI Core YoY (Aug F) 1.0% 1.0% 11:00 CPI MoM/YoY (Aug F) 0.2%/2.0% -0.3%/2.1% Events 09:30 Riksbank Minutes 11:00 ECB s Coeuré Speaks in Berlin 11:30-12:30 Belgium to Sell OLO Bonds Auction 12:15 ECB s Praet Speaks in Brussels 15:00 Riksbank's Ingves Gives Speech 10-year Close -1d 2-year Close -1d Stocks Close -1d US 3,00 0,03 US 2,78 0,02 DOW 26154,67 8,68 DE 0,45 0,03 DE -0,54 0,00 NASDAQ 8010,043-3,67 BE 0,78 0,03 BE -0,44 0,01 NIKKEI 23094,67 0,00 UK 1,53 0,03 UK 0,82 0,01 DAX 12124,33 68,78 JP 0,12 0,00 JP -0,10 0,00 DJ euro-50 3344,63 10,95 IRS EUR USD GBP EUR -1d -2d USD -1d -2d 3y 0,01 3,01 1,25 Eonia -0,3660-0,0010 5y 0,33 3,03 1,40 Euribor-1-0,3710 0,0010 Libor-1 2,1647 0,0063 10y 0,94 3,06 1,61 Euribor-3-0,3190 0,0000 Libor-3 2,3371 0,0030 Euribor-6-0,2690 0,0000 Libor-6 2,5688 0,0016 Currencies Close -1d Currencies Close -1d Commodities Close -1d EUR/USD 1,1625-0,0065 EUR/JPY 130,29-0,56 CRB 190,48-0,92 USD/JPY 112,06 0,14 EUR/GBP 0,8895-0,0025 Gold 1201,10-7,10 GBP/USD 1,3068-0,0040 EUR/CHF 1,1254-0,0032 Brent 78,09-0,09 AUD/USD 0,7153-0,0042 EUR/SEK 10,5231 0,0551 USD/CAD 1,3036 0,0038 EUR/NOK 9,6-0,0085 If you no longer wish to receive this mail, please contact us: kbcmarketresearch@kbc.be to unsubscribe P. 4
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