Rates
Core bonds traded with a small upward bias yesterday without clear driver. Risk sentiment on stock markets remained positive, but less outspoken. Mixed US eco data (including consumer confidence) didn't alter the intraday trading dynamics. The US $40bn 5-yr Note auction tailed slightly, but bidding metrics were strong. The German yield curve bull flattened with yields decreasing by 0.8 bps (2-yr) to 2.5 bps (30-yr). 10-yr yield spread changes vs Germany widened by up to 3 bps. US yields fell by 1.4 bps (10-yr) to 2.2 bps (30-yr).
Heavyweight Washington-based Fed governor Brainard offered her preliminary views on the Federal Reserve's review of its monetary policy strategy. She starts by admitting that she was struck that the effective lower bound (ELB) proved to be a severe impediment to the provision of policy accommodation initially because of long delays needed to develop consensus and take action on unconventional policy which sapped confidence, tightened financial conditions and weakened the recovery. For those reasons, she advocates a more mechanical approach for policy action when policy rates hit the ELB in future downturns. In particular, she sees advantages to an approach that caps interest rates on Treasury securities at the short-to-medium range of the maturity spectrum—yield curve caps—in tandem with forward guidance that conditions lift off from the ELB on employment and inflation outcomes.
Both would reinforce each other. In addition, once the targeted outcome is achieved, and the caps expire, any securities that were acquired under the program would roll off organically, unwinding the policy smoothly and predictably. The Fed's monetary policy review extends into 2020.
Most Asian stock markets extend gains this morning with China (-0.25%) underperforming. Chinese industrial profits fell by 9.9% in October, the most since at least 2011, with domestic demand slowing and producer prices falling. Core bonds tread water. Today's eco calendar contains US durable goods orders, weekly jobless claims, PCE deflators, Chicago PMI, income/spending data and new home sales. The probability that such complex of data triggers a directional move seems small. Ahead of the long weekend in the US, we expect core bonds to maintain their cautious upward bias.
Technically, the German 10-yr yield and US 10-yr yield both rebounded away from August lows following ECB/Fed September policy meetings. The German 10-yr yield broke above -0.41% resistance as geopolitical uncertainty diminished, improving the technical picture. Targets of this double bottom formation are -0.25% and -0.13%. The 38% retracement level of the Oct-Aug decline stands at -0.24%. The US 10-yr yield trades in the 1.43%-1.94% sideways trading channel. First tests to take out 1.94% failed, causing corrective return action lower.
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 weak below 1.0800 amid Good Friday lull, ahead of US PCE
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair keenly awaits the US PCE inflation data and Fed Chair Powell's speech for fresh hints on next week's price action.
GBP/USD holds steady above 1.2600 as markets stay calm on Good Friday
GBP/USD trades sideways above 1.2600 amid a typical Good Friday trading lull. A broadly firmer US Dollar could keep any upside attempts limited in the pair ahead of the US PCE inflation data and Fed Chair Powell's appearance.
Gold price sits at all-time highs above $2,230, US PCE eyed
Gold price hit all-time highs at $2,236 on Thursday to finish Q1 2024 with a bang. Most major world markets, including the US are closed due to Holy Friday, leaving volatility around Gold price highly subdued. US PCE inflation and Powell are awaited.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.