Core bonds eked out modest gains yesterday with UK Gilts again outperforming German Bunds and US Treasuries. Bets on a January rate cut rose north of 50% following a disappointing UK CPI inflation print. EMU bonds put on a decent performance given huge EMU bond supply. Belgium and Italy launched new syndicated deals, raising €6bn (Jun2030) and €7bn (Sep2050) respectively while Germany tapped the very long end. Europe's primary bond market already crossed the €150bn mark since the start of the year. That's nearly a week earlier than last year. The ECB's Q4 2019 revamp of asset purchases is the main driver behind successful supply operations. Eco data, US and China signing their Phase 1 trade deal, central bank speeches, and the Fed's Beige Book left no traces on markets. We retain that voting Dallas Fed governor Kaplan repeated this week's earlier warning by Boston Fed Rosengren that growth in the Fed balance sheet is supportive of higher valuations and risk assets (possible financial stability risks). The German and US yield curves both bull flattened. German yields lost 0.8 bps (2-yr) to 3.6 bps (30-yr) while US yields declined by 1.7 bps (2-yr) to 3.4 bps (30-yr). 10-yr yield spread changes vs Germany were unchanged with Italy (+3 bps) underperforming.

Most Asian stock markets cede some ground this morning with South Korea outperforming. Core bonds tread water. Today's eco calendar contains US retail sales, Philly Fed Business Outlook and weekly jobless claims. We see upside risks for retail sales but can they impress markets? We think investors are looking more at potential clues of inflation picking up rather than to the domestic data. Core bonds regained some vigor since wage inflation (last Friday), US CPI inflation (Tuesday) and PPI numbers (yesterday) didn't deliver the feared overshoot. We think that can remain the case this week with positive trade vibes also fading. Minutes of the ECB meeting, a Lagarde speech (unlikely to touch on monetary policy) and Q4 earnings serve as today's wildcards.

Technically: core bond yield's Q4 upleg was interrupted at the start of the year because of the US-Iran conflict. Geopolitical tensions in the Middle East again proved to have a limited shelf date as market theme. Inflation risk premia remain underpriced at current yield levels and could grab market attention with eg inflation expectations bottoming out. The German 10-yr yield tested -0.18% (July high)/-0.15% (38% retracement of Feb '18 – Sep '19 decline) resistance, but a break didn't occur (yet). The US 10-yr yield on multiple occasions failed to take out the 1.94% upper bound of the reigning trading channel.

 

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.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD hits two-month lows amid USD strength

EUR/USD has pared its gains that followed upbeat preliminary PMIs for Germany came out above expectations, pointing to a recovery. The USD is advancing amid fears of the coronavirus.

EUR/USD News

GBP/USD drops below 1.31 amid USD strength, fails to sustain PMI gains

GBP/USD is trading below  1.31 after hitting a fresh high of 1.3172. The UK Manufacturing PMI beat with 49.8 and Services PMI with 52.9. The USD is gaining ground across the board.

GBP/USD News

Cryptos: Bears take over and draw a bloody moon

Despite appearances, Bitcoin is the asset with the best risk/benefit ratio. The current falls are adjusted to the ranges of the previous rise. Downward momentum expires in the first half of February.

Read more

Gold rebounds above $1560

The XAU/USD pair dropped to a daily low of $1556.70 during the European trading hours as the easing worries over coronavirus becoming a global epidemic and a broad-based USD strength put the pair under bearish pressure.

Gold News

USD/JPY stuck in range around 109.50 amid China coronavirus concerns

USD/JPY sticks to its range play around the midpoint of the 109 handle amid rising fears of the Chinese coronavirus outbreak globally, upbeat Japanese CPI data and a minor bounce seen in the US dollar across the board. Focus shifts to US PMIs. 

USD/JPY News

Forex Majors

Cryptocurrencies

Signatures