KBC Market Research Desk
KBC Bank
Rates
The downtrend on global core bonds markets simply continued during yesterday's European trading session as risk sentiment thrived. However, the German 10-yr yield failed to clear the 0.5% resistance level for a second straight session, putting an intraday bottom for the Bund. Strong US eco data, disappointing EMU consumer confidence and this technical issue contributed to the underperformance of US Treasuries vs German Bunds. The US Note future slightly bounced back in the US session as well even if US stocks (S&P 500 and Dow) surged to new all-time highs. The US yield curve flattened with yield changes ranging between +1.3 bps (2-yr) and -1.4 bps (30-yr). The front end of the curve remains supported by next week's FOMC meeting and the recent repricing of 2018 Fed rate hikes (2 instead of 1; market implied probability >75%). German yields declined by 0.3 bps (2-yr) to 1.6 bps (10-yr) on a daily basis. 10-yr yield spread changes vs Germany were minor with Italy underperforming (+5 bps).
Asian stock markets cruise on yesterday's positive risk sentiment in Europe and the US and generally gain over 1%. The US Note future and JPY lose ground suggesting positive risk sentiment will last in the European open and could weigh on the German Bund.
Today's eco calendar is empty apart from EMU September PMI's. Consensus expects a stabilization around August levels for both the manufacturing (54.5) and services (54.4) gauges. We expect a near consensus outcome. In the current positive risk environment, it could weigh further on core bonds so we hold our intraday downward bias for the US Note future and the German Bund.
Tuesday's technical breaks in US yields suggest a test of the cycle highs in the run-up to next week's FOMC meeting. US yields started a nice upleg after September payrolls showed wage growth accelerating at its fastest pace this expansion. Other US eco data point to a continuation of current strong growth with more and more signs of additional inflationary pressures. This caused a repositioning higher in US yields, anticipating a longer US Fed tightening cycle, our long favoured scenario. The German 10-yr yield followed the US 10-yr yield higher and is testing the 0.5% upper bound of the 0.3%-0.5% sideways range. ECB's veiled upbeat comments on EMU inflation and the relief rally in Italian BTP's play an additional role.
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 clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.