Yesterday’s eco numbers (German ZEW investor sentiment, US housing numbers) played no role of intraday importance across markets. The main intraday move on bond markets occurred around the start of US trading hours. Bonds sold off following earnings by retailers Wall Mart and Home Depot. Both managed to beat expectations, though we must add that the former downplayed its guidance last month. Nevertheless, the results gave investors some courage that worst recession nightmares might be off the table as the (US) consumer holds stronger than feared. The proof of the pudding could be in today’s July US retail sales numbers. A second-session straight (late) swoon of oil prices (Brent fell from $96 to $92/b) failed to improve the intraday odds for core bonds. The US yield curve turned more inverse with daily yield changes ranging between -1.2 bps (30-yr) to +9.1 bps (3-yr). The German yield curve bear steepened with yields adding 4.6 bps (2-yr) to 7.5 bps (30-yr). From a technical point of view, the German 10-yr yield tested the psychologic 1% barrier, which coincides with last week’s high and with the topside of the downward corrective trend channel since mid-June. A break higher would be significant and call an end to that correction, making way for a further increase towards the 1.12% area. Stock markets continued their comeback higher after escaping from downward trend channels end July/early August. Main indices gained around 0.5% both in Europe and in the US. Ironically, a weak growth scenario (which eventually ends policy normalization cycles) does the trick. From a risk perspective, it beats the alternative of prolonged central bank tightening/inflation fighting. The US dollar failed to profit from yesterday’s relative yield dynamics. The trade-weighted greenback closed near unchanged at 106.50 with EUR/USD even winning some pips, closing at 1.0171 from an open at 1.0161.
Today’s eco data include this mornings Japanese trade numbers and UK inflation figures. Later today we’ll see the second reading of Q2 EMU GDP, US retail sales (see above) and Minutes of the previous FOMC meeting. Japan’s trade deficit hit a record high in July on surging imports. High commodities prices and a weak yen added to this. UK inflation once more exceeded consensus in July. The monthly dynamic remains strong at 0.6% M/M with the Y/Y figure accelerating from 9.4% to 10.1%, exceeding consensus (9.8%) and hitting double digits for the first time since 1982. Core inflation accelerated from 5.8% Y/Y to 6.2% Y/Y. Sterling spikes higher on the numbers as it strengthens the case for the Bank of England to hang on to its increased tightening pace. Governor Bailey and co in August pushed through a first 50 bps rate hike following 5 smaller steps (+25 bps) before. EUR/GBP trades below 0.84.
The Reserve Bank of New Zealand extended its tightening cycle this morning by lifting the policy rate by 50 bps, from 2.5% to 3%, the highest level since July 2015. It’s the fourth consecutive 50 bps rate hike, following three smaller 25 bps steps (inaugural move October 2021). In its new projections, the Monetary Policy Council (MPC) pencils in a more aggressive tightening path than in May. The policy rate is now forecast to peak just above 4% early next year and will only come down from 2025 onwards. More tightening “at pace” is necessary as the MPC judges core consumer inflation remains too high while labour resources remain scarce. Updated inflation forecast show a slowdown from the current 7.3% to 5.8% by the end of 2022 (5.5% forecast in May), to 3.8% by the end of 2023 and below the midpoint of the 1%-3% target range by mid-2024. Annual average projected growth in the year through March 2023 stands at 2.8%, before slowing to 0.8% in the year through March 2024 (from 1.3% in May). The kiwi dollar ticked higher on the decision, but fails to really build on this move. NZD/USD currently changes hands at 0.6360. The kiwi dollar swap curve is broadly unchanged, with yields up to 1.5 bps higher across the curve.
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.