Rates

Yesterday, core bonds traded with a modestly positive bias in a calm opening session of the week, but lost temporarily altitude on a batch of stronger, but second tier, US eco data (pending home sales & Dallas Fed manufacturing survey versus slightly weaker Chicago PMI). However, Treasuries recouped soon the losses while German bonds even eked out some, albeit modest, gains. In yield terms, US Treasuries were virtually unchanged while German bunds shed up to 2.5 bps (5-year outperformed). Volumes were as usual very low. In the morning session, EMU inflation and money supply reports confirmed the very low inflation and the sluggish lending climate. Inflation was reported unchanged at 0.5% Y/Y. Whether these data or some end-of-quarter repositioning drove core bonds higher in the morning is difficult to tell.

Today, the eco calendar remains interesting with the euro zone (final) manufacturing PMI and the US manufacturing ISM, the euro zone unemployment rate and also German unemployment figures.

According to the first estimate, the euro zone manufacturing PMI surprised on the downside of expectations, falling from 52.2 to 51.9, while a stabilization was expected. Available national data showed that sentiment weakened in both Germany and France. The final reading is forecast to confirm this outcome. We have no reasons to expect a material revision from the first estimate. Also in the euro zone, the unemployment rate is expected to have stabilized at 11.7% in May, following a slight drop in April. As we expect that the unemployment rate will extend its downtrend only very gradually, we believe that the consensus is fair. The risks, if there are any, might be for a downward surprise. In the US, the manufacturing ISM is forecast to show a little improvement in June, from 55.4 to 55.9. In June, most regional business confidence indicators surprised on the upside and improved slightly further and therefore we believe that also the manufacturing ISM might surprise on the upside. Seasonal adjustment factors are however slightly negative, which might be a risk factor.

The ECB holds its weekly MRO tender that will shape liquidity conditions in the week ahead (last week of the reserve period that ends July 8). Yesterday, eonia surged higher leading to a fixing at 0.336%. This is typically for an end-of-month/quarter and won’t have an impact on eonia trading further out. Regarding the MRO tender, the €115B allotment of last week expires, while the (average) autonomous factors will decline by an ECB-estimated €12.8B (add to available liquidity). Banks will repay €4.48B 3-year LTRO loans. We will report on the outcome of the MRO tender in our Sunset and the implications for eonia..

Overnight, Asian equities trade mixed, with Japan outperforming despite a slightly weaker Tankan. US Treasuries are slightly lower and the dollar stabilizes following a decline yesterday. Fed governor Williams (see headlines) had little impact on trading. Ukraine’s President warned that a new phase to liberate the East territories started after peace talks broke up. The market ignores it for now, but it might potentially return to the fore later on.

Regarding bond market today, the eco data are interesting, but only for the ISM we see risks (on the upside), which might be a bond negative. There are no events, other than the MRO tender that is no market mover though. From tomorrow onwards, the calendar becomes more interesting. So today, we concentrate whether the new quarter start with investors taking new positions. Bonds have done extremely well in H1, so will there be some repositioning out of bonds? On the other hand, bond sentiment is bullish and so are the technicals.

Technically, for US Treasuries, the Note future closed above the top of its tight ST sideways range (123-25- 124-23+/25+) and again above the uptrendline (125 today). The 10-year yield is near the key 2.46/40 support. A drop below would be technically very relevant. The Bund has broken above the upper bound on its sideways range and the 10-year German yield is below the 1.29% low. Concluding, the ST technical pictures for the Bund and the US Treasury Note are bullish.

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.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD keeps range above 1.0800 after German Retail Sales data

EUR/USD keeps range above 1.0800 after German Retail Sales data

EUR/USD struggles to gain traction and continues to move in a tight channel slightly above 1.0800. The data from Germany showed that Retail Sales declined by 1.9% on a monthly basis in February, making it difficult for the Euro to attract buyers.

EUR/USD News

GBP/USD stays depressed below 1.2650 amid market caution

GBP/USD stays depressed below 1.2650 amid market caution

GBP/USD remains defensive below 1.2650 in European trading on Thursday. The hawkish tone from Fed Governor Christopher Waller keeps the US Dollar afloat amid a cautious trading environment ahead of key US data releases and the Good Friday trading lull. 

GBP/USD News

Gold eyes daily close above $2,200 for a sustained uptrend

Gold eyes daily close above $2,200 for a sustained uptrend

Gold price is duplicating the move seen in Wednesday’s Asian trading, as it edges lower below $2,200 early Wednesday. Gold capitalizes on sustained US Dollar strength and a rebounding US Treasury bond yields struggle, as traders take account of the latest hawkish US Fed commentary.

Gold News

XRP ruling by Judge Torres denied in Coinbase lawsuit, yet another blow to Ripple

XRP ruling by Judge Torres denied in Coinbase lawsuit, yet another blow to Ripple

XRP programmatic sales ruling by Judge Torres completely rejected by US Court in Coinbase lawsuit. US Court rejected Coinbase’ motion to dismiss SEC lawsuit, weighing heavily on Ripple’s legal battle.

Read more

The other terminal rate: How far will policy rates be cut?

The other terminal rate: How far will policy rates be cut?

Recent communication by the Federal Reserve and the ECB has made it clear that the first cut in official interest rates is coming. Both central banks are saying the same but the ECB communication is more opaque than that of the Fed.

Read more

Majors

Cryptocurrencies

Signatures