Global core bonds ended near opening levels yesterday, with US Treasuries slightly outperforming German Bunds. US yields fell by 0.9 bps to 1.8 bps on a daily basis with German yields adding up to 1.6 bps (30-yr), steepening the curve. The marginal outperformance of US Treasuries came during US dealings and started after the release of a disappointing Chicago PMI (September). The regional business barometer fell back in contractionary territory (47.1 from 50.4) with production and new orders falling. A slightly better performance of US stock markets (+0.5%) didn’t change the tide. 10-yr yield spread changes vs Germany barely changed.
Asian stock markets gain up to 1% this morning. Chinese markets are closed from today until October 7 for National Holidays. The Japanese yield curve bear steepens for a second session straight. The 30-yr yield rises to its highest level since early June (0.42%). The BoJ announced in its October bond purchase plan to cut purchases for all conventional tenors longer than three years. Other news factors that influence the move are this morning’s very weak 10-yr JGB auction (worst since 2016) and the decision from Japan’s Government Pension Investment Fund, the world’s biggest pension fund, to consider currency-hedged overseas bond holdings as similar to domestic debt investments. The GPIF will thus be able to buy foreign debt beyond the 19% portfolio limit in its current mandate. The Bund and US Note future lose ground as well this morning.
Today’s eco calendar contains EMU inflation numbers and US manufacturing ISM. EMU (core) inflation is expected to stay well below the ECB’s 2% inflation target (both 1% Y/Y) with risks probably even tilted to the downside after yesterday’s German reading (0.9% Y/Y). We don’t expect any market reaction to the release, given that the focus currently is on activity data. The manufacturing ISM is expected to rebound from 49.1 to 50. We don’t expect the picture to brighten in the suffering production sector. The employment component will be closely watched with investors looking for whether or not Joe Sixpack will eventually be effected. ADP employment change (Wednesday), non-manufacturing ISM (Thursday) and payrolls (Friday) are still up for release later this week and might keep the market reaction guarded. Wildcards for trading are mostly politically related with developments in the US Democrats impeachment inquiry and in the Brexit process.
Technically, the German 10-yr yield and US 10-yr yield both rebounded away from August lows following ECB/Fed September policy meetings. Both fell short of really testing first resistance levels, respectively at -0.41% and 1.94%. Going forward, we expect range trading with August lows protecting the downside (German 10y: -0.73%; US 10y: 1.43).
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, as traders lack directional impetus 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 ends Q1 2024 at record highs, what’s next?
Gold is sitting at an all-time high of $2,236, lacking a trading impetus amid holiday-thinned conditions on Good Friday. Most major world markets, including the United States are closed in observance of Holy Friday, leaving volatility around Gold price highly subdued.
Ripple's move above this key level could trigger nearly 50% rally for XRP
Ripple price has overcome a critical resistance level and flipped into a support floor on the weekly time frame. This development happened while XRP tightly consolidated for roughly 250 days.
US core PCE inflation set to ease in February on month as Federal Reserve rate cut bets for June mount
The core Personal Consumption Expenditures Price Index is set to rise 0.3% MoM and 2.8% YoY in February. The revised Summary of Projections showed that policymakers upwardly revised end-2024 core PCE forecast to 2.6% from 2.4%.