Risk sentiment and Fed speeches will set the tone

KBC Market Research Desk KBC Bank

Rates

Global core bonds had a strange opening session of the week. They initially lost ground as geopolitical tensions eased slightly during the weekend, but soon found a bottom, gradually returning to opening levels during US trading. Mixed to disappointing US eco data and improving US risk sentiment played no role of significance. The German yield curve bear steepened with yields 0.5 bps (2-yr) to 1.4 bps (30-yr) higher. The US yield curve flattened with yield changes varying between +2.1 bps (2-yr) and -0.3 bps (30-yr). Dovish Fed governor Kashkari sounded supportive of interest rate hikes given fiscal stimulus. 10-yr yield spread changes vs Germany narrowed 1 to 2 bps with Greece outperforming (-7 bps).

Most risk barometers point to a neutral opening to today’s session. Only Chinese equities underperform for a second straight session. US President Trump nominated two new Fed governors, including a vice chair (still subject to Senate confirmation), Richard Clarida, who is known as an inflation hawk. He might flip the balance in the dot plot to 3 additional hikes this year. Markets didn’t react to the news though.

Today’s eco calendar contains German ZEW investor sentiment, US housing data and US industrial production. Recent sentiment indicators disappointed in EMU, suggesting a bigger setback than the projected 88 (current) and -1 (expectations) in the ZEW-indicator. The US data on the agenda generally don’t draw that much of attention. Risk sentiment and Fed speakers will be key. The US is said to delay imposing additional sanctions on Russia, suggesting a further short term improvement of risk sentiment. Regarding central bankers, we especially eye the speech by SF Fed President Williams who will be bumped to the head of the NY Fed and probably keeps the door open to at least 2 more rate hikes this year. Those items suggest a minor downward bias for core bonds today, but definitely within the established consolidation ranges.

The German 10-yr yield reached key support levels (0.46%/0.48%). We think that the slide went far enough against the background of the ECB slowly turning the corner and embracing policy normalization. We turn neutral going forward. The US 10-yr yield lost its upward momentum mid-March. Rising geopolitical risks weighed on risk sentiment and pulled long term yields down as well. We favour sideways action, roughly between 2.7% and 2.9%.

Download The Full Sunrise Market Commentary

Author

KBC Market Research Desk

KBC Bank

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.