Core bond trading was confined to narrow ranges yesterday. Both the German Bund and the US Note future slightly fainted during US hours. US Treasuries underperformed in a supply-related move. This week sees record US issuance. The US Treasury kicked off with a $42bn 3-yr Note auction, but 10-yr and 30-yr deals will follow. Treasury Secretary Mnuchin stressed the increased reliance of issuance of (longer term) debt as plotted out in last week’s quarterly refunding statement. Yesterday’s 3-yr sale in any case was well digested. The US yield curve bear steepened with yields rising 1.7 bps (2-yr) to 3.3 bps (30-yr). The German yield curve bear flattened with yields adding 2.8 bps (2-yr) to 2.2 bps (30-yr). 10-yr yield spread changes vs Germany barely changed with Greece (-5 bps) outperforming. No relief rally in peripherals thus after the Eurogroup decided on the ESM Pandemic Credit Line (up to 2% of 2019 GDP; no conditionality). Italian BTP’s didn’t react to Moody’s keeping the lowest possible investment grade rating (Baa3).
Most Asian stock markets lose ground this morning, ignoring WS’s late sprint yesterday. Fox Business reported that US President Trump will pull federal money (retirement funds) out of Chinese equities which risks retaliating Chinese measures and weighing on the countries trade relationship. China on his part has suspended meat imports from four Australian abattoirs (35% of Australian beef exports to China), probably in response to the Australian government’s blame game with regard to the origin of the Covid-19 virus. Core bonds trade a tad stronger this morning.
Today’s eco calendar contains US NFIB Small Business Optimism and CPI inflation. Several Fed governors are scheduled to speak. It will be interesting to hear comments on the negative (yield) part of the Fed Funds Future curve (2021). We expect Fed governors to categorically rule out negative policy rates. In combination with more US supply ($32bn 10-yr Notes), there is thus room for additional underperformance of US Treasuries. Tomorrow’s speech by Fed Chair Powell will be closely watched in this respect as well. This week’s eco calendar is generally backloaded with US retail sales, Empire Manufacturing (May), industrial production and Michigan consumer confidence all on Friday. Chinese retail sales, investments and industrial production data will be published as well that day.
From a technical point of view, the German 10-yr yield is trying to find a fresh equilibrium. For US yields, the Fed’s unlimited QE announcement is the de facto start of curve control probably reducing volatility. A trading range between 0.5% and 0.8% opened up.
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.