As one could have expected with so many key variables (including the ECB, US and EMU growth & inflation) looming on the horizon, trading was largely technically inspired yesterday. Stocks in Europe finished more or less flat while setting new highs in the US. Democratic Senator Manchin said his party should be able to reach a deal on Biden’s fiscal stimulus plans this week. Manchin’s support for it is crucial to get the package voted in Congress. Core bond yields fainted in early US dealings, leading to a bull flattening of the US curve. Changes ranged from -2.5 bps (3y) to 1.3 bps (30y). Changes in Germany amounted to -2.7 bps (2y) to +3 bps (30y). In both rising inflation expectations compensated for a decline in real yields. Gilt yields entered calmer waters after a volatile last week. The dollar traded a mixed pattern but still had the upper hand against a poorly shaped euro. EUR/USD struggled to keep the 1.16 dry. The trade-weighted DXY flipflopped around a second-degree technical reference of 93.73. A resilient sterling sent EUR/GBP below the 0.845 support again. This occurred even with BoE’s Tenreyro sticking to the view that the energy-driven inflation boost should fade soon, suggesting not everyone within the MPC is on board for a November rate hike. We also note the strong underperformance of Central-European currencies, especially against the USD.

The Japanese yen trades in the defensive in Asian dealings this morning. This causes Japanese equities to outperform. South Kora comes in second, even as GDP growth in Q3 disappointed (see below). USD/CNY hold steady near a four-month low after Chinese vice-premier Liu He and USTS Yellen had a “pragmatic, candid and constructive” phone call on economic and trade-related matters. Commodity-reliant currencies including AUD, NZD, CAD and NOK are among the better performers. The dollar (mixed) and the euro (overall weak) stick to yesterday’s trading path while core bonds lack triggers for trading. Unfortunately, there’s not a lot to change that. The economic calendar kicks off with US Conference Board consumer confidence (expected to ease one point from 109.3) but that’s basically it for today. The upcoming ECB meeting is a millstone around the neck of the euro and we hold our short-term bearish view for the common currency. EUR/USD 1.153/1.1495 is the first technical reference to the downside. In EUR/GBP we look whether recent support in the 0.842 area holds. Numerous tests since mid-October failed so far even as markets ramped up BoE rate hike bests. This suggests if the pair would force a break lower, it’ll have to come on the account of the euro.

News headlines

South Korean Q3 GDP growth slowed more than expected, from 0.8% Q/Q to 0.3% Q/Q (vs 0.6% forecasts). The annual growth figure declines from 6% to 4%. Contractions in consumption (-0.3% Q/Q) and fixed investment (-1.9% Q/Q) were the main culprit with a rebound in exports (+1.5% Q/Q with imports down 0.6% Q/Q) unable to completely erase the damage. Government spending rose 1.1% Q/Q. The softer GDP print isn’t expected to derail the Bank of Korea from a well-flagged November rate hike. The GDP slowdown should be a blip as the reopening of the economy and a significant advance in vaccination rates bodes well for (consumption in) Q4. The Korean won extends this month’s rebound with USD/KRW trading near the lowest level in a month (1165).

Turkish president Erdogan backed down on his treat to declare 10 western ambassadors persona non grata. The ten called for a release of a jailed businessman-turned-philanthropist which evoked Erdogan’s fury. A decision by the ten countries to restate their commitment to the Vienna Convention on diplomatic relations triggered the Turkish president’s U-turn. That and probably the umpteenth sell-off in Turkish assets including the lira following Erdogan’s initial decision. EUR/TRY came off a record high near 11.50 to currently trade around 11.15. 

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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.

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