Global core bonds suffered some losses yesterday with US Treasuries underperforming German Bunds. Bunds took an early lead after Reuters reported that a "significant minority" of ECB governors didn't believe in an H2 growth recovery. The upleg was undone by another ECB story based on "people close to the matter", this time run by Bloomberg. The second article suggested little willingness for tiering negative rates. A tiered system is synonymous to a pledge of keeping rates lower for longer. Core bonds started drifting lower during US trading despite disappointing March US production data. The NAHB housing index recovered slightly further, as expected. Stock markets and oil prices remained supported. US yields added 2.1 bps (2-yr) to 3.6 bps (10-yr) on a daily basis. The German yield curve steepened with yield changed between -0.8 bps (2-yr) and +1.2 bps (30-yr). 10-yr yield spread changes vs Germany ended narrowly mixed.

Core bonds edge further down this morning after Chinese eco data silences the most pessimistic growth scenarios. Q1 GDP grew by 1.4% SA Q/Q and 6.4% Y/Y (vs 6.3% forecast). More importantly, industrial production showed a significant rebound in March (8.5% Y/Y vs 5.9% Y/Y) with also retail sales (8.7% Y/Y) beating consensus. Asian stock markets profit only marginally from the news while Brent crude rises above the technical $72/barrel hurdle.

The onus of today's eco calendar is behind us. We think that core bonds might lose some more ground on hopes that the through of the Chinese economic downturn is now behind us. Final EMU CPI data won't impact trading. Speeches by Fed Harker and Bullard are wildcards. The Fed releases its Beige Book which assesses regional economic momentum in greater detail. We expect it to underpin the Fed's cautious attitude and thus conflict with this morning's "enthusiasm". Q1 earnings continue with amongst others Morgan Stanley and Alcoa.

Long term view: markets concluded that the ECB missed out on this cycle. They even start pondering the possibility of an additional deposit rate cut. The downtrend in the German 10-yr remains in place so far. Regarding Fed policy, markets now discount a 40% probability of a Fed rate cut by December. The US 10-yr yield closed above the lower bound of the previous 2.5%-2.79% trading range. A confirmation would turn the technical picture more neutral again.

Download The Full Sunrise Market Commentary

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.

Feed news

Latest Forex Analysis

Editors’ Picks

EUR/USD: Snaps four-day winning run, but bull breakout still valid

EUR/USD fell 0.28 percent on Tuesday, engulfing Monday's high and low and ending the four-day winning streak. The currency pair however, defended the former resistance-turned-support of the 200-day MA.


GBP/USD retraces from 5-week high amid fewer fresh catalysts from UK

While renewed fears of no-deal Brexit and less dovish Fed speak dragged the GBP/USD pair back from a month’s high, the Cable trades little changed near 1.2690 during early Wednesday.


USD/JPY: Bulls back in charge, re-takes 107.50

The less dovish rhetoric from a selection of Fed speakers overnight continues to aid the post-FOMC US dollar recovery, prompting the USD/JPY pair to retest the midpoint of the 107 handle despite negative Asian equities. 


Conference Board Consumer Confidence: The China syndrome

The index declined to 121.5 in June from April’s revised 131.3. A much more modest drop to 131.2 had been predicted.  “The escalation in trade and tariff tensions earlier this month appears to have shaken consumers’ confidence,” wrote Lynn Franco.

Read more

Gold bulls target $1485/oz

Gold prices rallied in Asia but stalled and started to deteriorate in European markets into consolidation before a sell-off emerged on the back of less dovish than expected rhetoric from Fed speakers on New York.

Gold News