Rates
Global core bonds ended nearly unchanged yesterday. The Bund opened stronger on more equity weakness early in European trading, but stock markets soon found their composure, putting the Bund on a slight downwardly sloping path. Headline US retail sales disappointed, but details suggested a solid end to Q3 from a consumption point of view. Core bonds didn’t react. US equity markets sold off in the final trading hour, but the US Note future didn’t profit from safe haven flows overnight.
The German yield curve steepened in a daily perspective with yield changes ranging between -0.8 bps (2-yr) and +0.6 bps (30-yr). US yield differences varied between +0.2 bps and -0.6 bps with the belly of the curve outperforming the wings. 10-yr yield spread changes vs Germany ended barely unchanged with Portugal (-5 bps; rating upgrade from junk Ba1 to investment grade Baa3) and Italy (-4 bps) outperforming. The Italian government approved the controversial draft budget for next year (deficit of 2.4% of GDP) after European close. It will now be reviewed by the EC who can ask to make changes, which would be a precedent. Spanish bonds underperformed Italian BTP’s yesterday as the Spanish government also decided to use more fiscal leeway than earlier agreed with Europe in its budget proposal.
Asian stock markets ignore the late WS down leg and record gains of up to 1% overnight. The US Note future loses ground. The US budget deficit officially rose to 3.9% of GDP during US President Trump’s first full fiscal year which is the highest since 2012. The CBO forecasts it to rise even further in the years ahead. These deteriorating US fiscal metrics warrant higher US yields via a higher credit risk premium going forward and adds to our longer term bearish US Note future call.
Today’s eco calendar contains September US industrial production and October German ZEW investor sentiment. We don’t expect them to be game changers today. We’d rather continue monitoring developments on stock markets following last week’s bearish break of some European indices. We add though that core bond’s performance was rather disappointing last week given circumstances, indicating that the upside might be exhausted. Comments from SF Fed governor Daly could be interesting if she touches on monetary policy given that she’s new at the Fed (didn’t participate in September meeting).
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 drops below 1.0800 after German Retail Sales data
EUR/USD has come under fresh selling pressure and trades below 1.0800 after the data from Germany showed that Retail Sales declined by 1.9% MoM in February. Resurgent US Dollar demand is adding to the downside in the pair. US data are next in focus.
GBP/USD stays weak near 1.2600 amid market caution
GBP/USD remains defensive near 1.2600 in European trading on Thursday. The hawkish tone from Fed Governor Christopher Waller keeps the US Dollar afloat amid a cautious trading environment ahead of key US data releases and the Good Friday trading lull.
Gold price bulls keenly await US PCE Price Index on Friday before placing fresh bets
Gold price (XAU/USD) continues with its struggle to make it through the $2,200 mark on Thursday and oscillates in a narrow trading band through the early part of the European session.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
The other terminal rate: How far will policy rates be cut?
Recent communication by the Federal Reserve and the ECB has made it clear that the first cut in official interest rates is coming. Both central banks are saying the same but the ECB communication is more opaque than that of the Fed.