KBC Market Research Desk
KBC Bank
Markets
Yesterday started with a continuation of last week’s trading dynamics but ended quite differently. European equities slipped about 1.5%. Wall Street in early trading recorded losses as deep as 2.7% for the Nasdaq before staging an impressive intraday turnaround. The tech-heavy index even managed a marginal green close of 0.05%. There were no specific triggers other than dip-buyers and core bond yields not really pushing through to the same extent. The US curve flattened with the short end adding >3 bps but the long end shedding up to 2.7 bps (30y). The 10y tested 1.77% resistance to reach an intraday high of 1.806% before closing at 1.76%. German yields fluctuated and finished with minor gains of 0.7-1.3 bps across the curve. The 10y variant (-0.034%) eked out another cycle high. The European 10y swap yield (0.38%) took another baby step towards the 0.40/42% resistance area. Japan’s yen came out victorious in FX space thanks to the fragile sentiment and lesser core bond yield momentum. EUR/JPY fell from 131.30 to 130.46. USD/JPY closed at 115.20, down from 115.66. Interesting to note: the Swiss franc was hammered. EUR/CHF in recent days edged higher from 1.034 to 1.05 yesterday. Some refer to fears that the central bank may start intervening in case the situation along Ukrainian borders sours further. Barring the yen, the dollar gained against major peers though finished in off intraday highs in most cases. EUR/USD edged lower from 1.136 to 1.133 after recovering from declining sub 1.13. EUR/GBP whipsawed in similar fashion and ended slightly lower at 0.834 (from 0.835).
Asian stocks again have little to trade on. Japan loses about 1% after being closed on Monday. Losses are similar for China and South Korea. Australia drops 0.75% even after stellar retail sales (see headline below). Yesterday’s FX gainers are today’s marginal losers. Both the JPY and USD lose within the range of 0.1-0.3%. Core bonds trade unchanged after erasing an early Asian uptick.
Today’s economic calendar is again vast emptiness. We mention Fed chair Powell’s hearing before the Senate on his nomination for a second term. According to his prepared remarks, released after market, Powell’s focus will be on preventing higher inflation from becoming entrenched. Regarding prices, there’s a new figure to be published tomorrow. Seeing yesterday’s dynamics, the rise in core/US bond yields ahead of the CPI print may therefore ease a bit in a daily perspective. EUR/USD trading will be sentiment and technically driven within the gentle upward sloping trend channel. In the UK, we’re keeping an eye at the politics, were (energy) inflation is becoming a major source of concern. It may add (implicit) pressure to the Bank of England to frontload policy normalization. EUR/GBP sticks to recent lows around 0.834.
News headlines
Czech National Bank member Michl expects Czech inflation to accelerate further and possibly reach 10% Y/Y (!) in January. December data will be released tomorrow with Bloomberg consensus ‘only’ expecting an increase from 6% Y/Y in November to 6.6% Y/Y. Despite this double digit inflation prediction, Michl remains opposed to further rate hikes together with his CNB colleague Dedek. One of Michl’s main arguments is that the wide interest-rate differential risks attracting inflows of speculative capital. Ever since the 1 ppt rate hike in December (to 3.75%), the Czech koruna has been rallying without looking back. EUR/CZK currently changes hands near 24.35. Next support (2012) stands at 24.28. Czech money markets expect the policy rate peak later this year to be around 5%.
Australian retail sales rose by a whopping 7.3% M/M in November after an already strong October month (+4.9% M/M). Details showed that apparel and department stores sales rose by 38.2% M/M and by 26% M/M respectively. The end of local lockdowns is responsible for the huge surge. Sales in the state of Victoria soared for example by 20% M/M. Local financial markets don’t really react to the data. AUD/USD trades a tad higher near 0.7180.
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.
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