KBC Market Research Desk
KBC Bank
Core bonds eked out some small additional gains yesterday. Risk aversion played a role during European trading with USD/JPY significantly losing ground and European stocks under pressure. The eco calendar only contained stronger-than-expected NFIB small business optimism. Risk sentiment on stock market improved during US trading, but caused no turnaround on the bond market. Changes on the German yield curve were limited between + 0.6 bps (2-yr) and -0.6 bps (10-yr) with an underperformance of the 30-yr yield (+2.4 bps). The US yield curve flattened with yield changes varying between +2.8 bps (2-yr) and -3.2 bps (30-yr). Voting Fed-member Mester, who is rumored to have a good shot at becoming next Fed vice-chair, said that recent market turmoil didn’t alter her mildly hawkish views on monetary policy. On intra-EMU bond markets, 10-yr yield spread changes versus Germany widened 1 bp with the periphery underperforming (+6 bps for Portugal, Spain and Italy; +11 bps for Greece).
The US Note future continues trading with an upward bias this morning as yen strength remains a theme. USD/JPY briefly fell below 107, to the lowest level since the end of 2016. Collateral damage on Asian bourses remains limited, putting the traditional market correlations once more to the test. We expect a somewhat stronger opening for the Bund.
Today’s eco calendar heats up in the US with the key CPI release and retail sales. Inflation is expected to slow to 1.9% Y/Y (from 2.1% Y/Y) for the headline index and to 1.7% Y/Y (from 1.8% Y/Y) for the core measure. Monthly readings are expected to print at 0.3% and 0.2% respectively. The current (modest) comeback of core bonds could gain some momentum in case of a below or at consensus outcome. We doubt that core bond sellers will come out in strength on a higher reading in the current fragile risk-off climate. US retail sales are forecast to show a 0.2% monthly advance, but activity data are at this moment less important than price data.
Short term, we favour more consolidation, but strong growth momentum, rising inflation (expectations) and the global turn towards monetary policy normalization are structurally negative factors for core bonds medium term. US and German yields cleared resistance levels earlier this year and moved towards next targets. The trading band for the US 10-yr yield is 2.64%-3.05%. Correction towards the lower bound could be used to put up short positions in the Note future. The German 10-yr yield’s trading band is 0.62%-1.06%.
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
Editors’ Picks
EUR/USD trades with negative bias, holds above 1.0700 as traders await US PCE Price Index
EUR/USD edges lower during the Asian session on Friday and moves away from a two-week high, around the 1.0740 area touched the previous day. Spot prices trade around the 1.0725-1.0720 region and remain at the mercy of the US Dollar price dynamics ahead of the crucial US data.
USD/JPY jumps above 156.00 on BoJ's steady policy
USD/JPY has come under intense buying pressure, surging past 156.00 after the Bank of Japan kept the key rate unchanged but tweaked its policy statement. The BoJ maintained its fiscal year 2024 and 2025 core inflation forecasts, disappointing the Japanese Yen buyers.
Gold price flatlines as traders look to US PCE Price Index for some meaningful impetus
Gold price lacks any firm intraday direction and is influenced by a combination of diverging forces. The weaker US GDP print and a rise in US inflation benefit the metal amid subdued USD demand. Hawkish Fed expectations cap the upside as traders await the release of the US PCE Price Index.
Sei Price Prediction: SEI is in the zone of interest after a 10% leap
Sei price has been in recovery mode for almost ten days now, following a fall of almost 65% beginning in mid-March. While the SEI bulls continue to show strength, the uptrend could prove premature as massive bearish sentiment hovers above the altcoin’s price.
US core PCE inflation set to signal firm price pressures as markets delay Federal Reserve rate cut bets
The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in March, matching February’s increase.