KBC Market Research Desk
KBC Bank
Rates
Hawkish ECB Minutes are bearish signal for Bunds
The German Bund and US Note future took again a different direction yesterday. The German Bund significantly underperformed after hawkish ECB Minutes which suggested a change in forward guidance early 2018. The Euribor 3m forward curve bear steepened with markets now discounting positive 3m Euribor rates in Q3 2019 vs Q4 2019 earlier. US Treasuries didn’t suffer from spill-over selling. Disappointing PPI’s were even marginally supportive. Eventually, the US curve flattened. The front end suffered from hawkish comments from Fed Dudley. The outgoing NY Fed President favours 3 rate hikes, but warned for risks of an overheating economy. The long end of the curve profited from a spectacular 30-yr Bond auction.
US yield changes ranged between +0.5 bps (2-yr) and -3.1 bps (30-yr). German yields rose by 1.7 bps (30-yr) to 6.3 bps (5-yr) in a daily perspective. 10-yr yield spread changes versus Germany were limited between -2 bps and +2 bps with Greece underperforming (+14 bps) and Portugal & Spain outperforming (-5/6 bps).
Most Asian stock markets gain ground overnight in line with WS’s yesterday with Japan underperforming. Brent crude briefly spiked to $70/barrel yesterday, but couldn’t maintain gains and returned to $69/barrel. The US note future trades flat, suggesting a neutral opening for the Bund.
Today’s US eco calendar heats up with CPI and retail sales. Consensus expects a 0.1% M/M increase for the headline inflation reading (2.1% Y/Y) and a 0.2% M/M rise for the core measure (1.7% Y/Y). CPI readings have market moving potential in the current volatile US Treasury market. We think that especially higher CPI data won’t go unnoticed since the US 10-yr yield’s technical break above 2.5% earlier this week (bearish signal US Treasuries). The technical break suggests a move to 2.63%/2.64%. US retail sales are forecast to increase 0.5% M/M in December, but activity data lost their market-moving appeal recently.
The EMU eco calendar is empty. German trade union negotiations about pay rises haven’t concluded yet. German wages are expected to be pivotal to start an upward spiral in EMU price dynamics and could be a bearish signal for Bunds. We expect the German 10-yr yield to rise towards 0.62%. Yesterday’s hawkish ECB Minutes suggest more short term repositioning, anticipating perhaps already changes to the ECB’s forward guidance in March. Strong global growth, rising inflation expectations and the global push to monetary normalisation are bearish factors for bonds medium term.
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
AUD/USD risks a deeper drop in the short term
AUD/USD rapidly left behind Wednesday’s decent advance and resumed its downward trend on the back of the intense buying pressure in the greenback, while mixed results from the domestic labour market report failed to lend support to AUD.
EUR/USD leaves the door open to a decline to 1.0600
A decent comeback in the Greenback lured sellers back into the market, motivating EUR/USD to give away the earlier advance to weekly tops around 1.0690 and shift its attention to a potential revisit of the 1.0600 neighbourhood instead.
Gold is closely monitoring geopolitics
Gold trades in positive territory above $2,380 on Thursday. Although the benchmark 10-year US Treasury bond yield holds steady following upbeat US data, XAU/USD continues to stretch higher on growing fears over a deepening conflict in the Middle East.
Bitcoin price shows strength as IMF attests to spread and intensity of BTC transactions ahead of halving
Bitcoin (BTC) price is borderline strong and weak with the brunt of the weakness being felt by altcoins. Regarding strength, it continues to close above the $60,000 threshold for seven weeks in a row.
Is the Biden administration trying to destroy the Dollar?
Confidence in Western financial markets has already been shaken enough by the 20% devaluation of the dollar over the last few years. But now the European Commission wants to hand Ukraine $300 billion seized from Russia.