US 10-yr yield tests 1.94% resistance

KBC Market Research Desk KBC Bank

Core bonds lost tremendous ground yesterday. Both the German Bund and US Note future slid from start to finish. Yesterday's main and only story featured a tariff rollback between the US and China if the phase one trade deal is completed. The first comments came from a Chinese ministry of Commerce spokesman, but White House economic advisor Kudlow later confirmed the advance: "If there's a phase one trade deal, there are going to be tariff agreements and concessions". The more hawkish trade officials in Washington still sound more guarded, but they seem to be a minority. Investors embrace the progress and expect the deal to be signed upon before the end of the year. US stock markets rallied to fresh all-time records, with European indices also recording multiyear highs. The German yield curve bear steepened with yields rising by 2.6 bps (2-yr) to 10.8 bps (30-yr). Changes on the US yield curve ranged between +6 bps (2-yr) and +9.9 bps (5-yr). The US 10-yr yield tested 1.94% resistance, but a break higher didn't occur. The US $19bn 30-yr Bond auction tailed somewhat, but overall demand was in line with average. 10-yr yield spread changes vs Germany ended close to unchanged with Greece (-5 bps) outperforming and Italy (+6 bps) underperforming. Asian stock markets cede slightly ground this morning with Japan outperforming (+0.25%). Core bonds trade slightly off yesterday's intraday sell-off lows. Overnight news flow remains extremely thin. Today's eco calendar remains confined to November University of Michigan consumer confidence. Consensus expects a stabilization at 95.5, but we don't expect the outcome to be crucial for trading. Risk sentiment on stock markets remains key. Main US/European indices since mid-October started frontrunning on less geopolitical uncertainty (Brexit & US-Chinese trade talks). On the one hand, quite some good news is already discounted. On the other hand, we don't see big reasons to be overly cautious. The US and China can still bring additional good news, by means of a date and location for signing off on their phase 1 trade deal. The long weekend ahead in the US (Veterans' Day) might cause some to take chips off the table, but we wouldn't buy into any core bond comeback at this stage.

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, 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. The upper bound is within reach.

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.