KBC Market Research Desk
KBC Bank
Yesterday's trading session on core bond markets resembled the one on Monday. Risk sentiment on stock markets continues to be hesitant with main indices having trouble to reach fresh highs on a daily basis the way they did in October/early November. Add the fact that both the German (-0.25%) and US 10-yr yield (1.94%) failed to take out resistance levels and the two-day corrective bull steepening is a fact. There's nothing better-than-expected German Q3 GDP data (0.1% Q/Q; avoided technical recession) could do to change that. German yields fell by 1.7 bps (2-yr) to 6.6 bps (30-yr) on a daily basis. Changes on the US yield curve varied between -4.5 bps (2-yr) and -6.7 bps (30-yr). Peripheral yield spreads vs Germany widened rather significantly for a second straight session: Italy (+13 bps), Greece (+11 bps), Portugal (+7 bps) and Spain (+6 bps). Asian stock markets gain up to 1% this morning with China (-0.5%) underperforming. The German Bund and US Note future lose ground. Moves in Japanese government bonds also suggest an end to the correction of past days. Most recent US-Sino trade comments were more upbeat with White House economic advisor Kudlow saying that negotiations were coming down to the final stages.
Today's eco calendar heats up in the US with October retail sales, October industrial production and the November Empire Manufacturing Survey. Retail sales will hijack most attention. Consensus expects 0.2% M/M growth in the headline number, which might be overrated because of dwindling car sales. However, the report should be able to pass the 0.3% M/M consensus bar for the core reading following flat growth in September. Overall, we believe that US eco data should underpin the hypothesis that US economic data will start to recover and the Fed's case that three rate cuts are sufficient. It should help put and end to core bond's corrective rally. Risk sentiment on stock markets remains a wildcard. Our base scenario still expects phase one of the US-Sino trade deal to be sealed before the end of the year.
Technically, the German 10-yr yield and US 10-yr yield both rebounded away from August lows following ECB/Fed September policy meetings. The German 10-yr yield broke above -0.41% resistance as geopolitical uncertainty diminished, improving the technical picture. Targets of this double bottom formation are -0.25% and -0.13%. The 38% retracement level of the Oct-Aug decline stands at -0.24%. The US 10-yr yield trades in the 1.43%-1.94% sideways trading channel. Recent tests to take out 1.94% failed, causing corrective return action lower.
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.