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Headlines - Microsoft · 2018-11-08 · late drama. Daily yield changes range between +2.9 bps...

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Thursday, 08 November 2018 P. 1 Internal Rates: EC autumn forecasts and FOMC meeting are key trading themes Italian media report on significantly lower growth and higher deficit forecasts in the EC’s autumn update. Italian BTP’s could underperform as the November 13 deadline to submit budget changes is nearing. The Fed is expected to give the “all clear” to continue tightening in coming months as US mid-terms didn’t surprise and the economy keeps firing on all cylinders. Currencies: Post-election USD correction short-lived Yesterday, the dollar lost temporarily ground after the results of the mid-term election. However, ongoing solid interest rate support prevent further USD losses. Today, the focus turns to the Fed policy statement. The Fed holding to its established rate hike path might put the dollar again in the driver’s seat. Sterling continues to profit from hopes on a Brexit deal. Calendar US stock markets rallied higher yesterday marking gains over 2% following the US midterm elections. Nasdaq (+2.64%) outperformed. Most Asian indices trade positive, but, except for Japan, can’t copy WS’s gains. China underperforms. US President Trump called for collaboration with the Democrats after they re- gained majority in the House of Representatives. Trump already said he’d consider a middle-class tax cut even if it means to re-raise corporate taxes. Chinese exports grew 15.6% (YoY) in October in USD terms and imports by 20.1% YoY, suggesting frontloading ahead of the implementation of additional US tariffs. The trade surplus rose from $31.28bn to $34.01bn. The central bank of New Zealand (RBNZ) left its official cash rate, as expected, on hold at a record-low 1.75%. Governor Orr added that rates would stay at this level through 2019 and into 2020. The kiwi dollar remains at $0.6775. The ECB has chosen Italy’s Andrea Enria to become the eurozone’s chief banking supervisor over Ireland’s Donnery. This paves the way for Irish Central Bank Governor Philip Lane to become chief economist of the ECB next summer. UK PM May has invited her senior ministers yesterday to examine the 95% of the withdrawal package that has been agreed so far. The remaining 5%, mainly the Irish border issue, is still being negotiated by officials of both parties. Today’s economic calendar is rather thin with the Initial Jobless Claims in the US, followed by the FOMC’s Rate Decision. The European Commission will update its economic forecasts and ECB president Draghi speaks in Dublin. Headlines S&P Eurostoxx 50 Nikkei Oil CRB Gold 2 yr US 10 yr US 2yr DE 10 yr DE EUR/USD USD/JPY EUR/GBP
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Page 1: Headlines - Microsoft · 2018-11-08 · late drama. Daily yield changes range between +2.9 bps (2-yr) and -0.2 bps (30-yr). The Fed is expected to give the go ahead for its tightening

Thursday, 08 November 2018

P. 1

Internal

Rates: EC autumn forecasts and FOMC meeting are key trading themes

Italian media report on significantly lower growth and higher deficit forecasts in the EC’s autumn update. Italian BTP’s could underperform as the November 13 deadline to submit budget changes is nearing. The Fed is expected to give the “all clear” to continue tightening in coming months as US mid-terms didn’t surprise and the economy keeps firing on all cylinders.

Currencies: Post-election USD correction short-lived

Yesterday, the dollar lost temporarily ground after the results of the mid-term election. However, ongoing solid interest rate support prevent further USD losses. Today, the focus turns to the Fed policy statement. The Fed holding to its established rate hike path might put the dollar again in the driver’s seat. Sterling continues to profit from hopes on a Brexit deal.

Calendar

• US stock markets rallied higher yesterday marking gains over 2% following the

US midterm elections. Nasdaq (+2.64%) outperformed. Most Asian indices trade positive, but, except for Japan, can’t copy WS’s gains. China underperforms.

• US President Trump called for collaboration with the Democrats after they re-gained majority in the House of Representatives. Trump already said he’d consider a middle-class tax cut even if it means to re-raise corporate taxes.

• Chinese exports grew 15.6% (YoY) in October in USD terms and imports by 20.1% YoY, suggesting frontloading ahead of the implementation of additional US tariffs. The trade surplus rose from $31.28bn to $34.01bn.

• The central bank of New Zealand (RBNZ) left its official cash rate, as expected, on hold at a record-low 1.75%. Governor Orr added that rates would stay at this level through 2019 and into 2020. The kiwi dollar remains at $0.6775.

• The ECB has chosen Italy’s Andrea Enria to become the eurozone’s chief banking supervisor over Ireland’s Donnery. This paves the way for Irish Central Bank Governor Philip Lane to become chief economist of the ECB next summer.

• UK PM May has invited her senior ministers yesterday to examine the 95% of the withdrawal package that has been agreed so far. The remaining 5%, mainly the Irish border issue, is still being negotiated by officials of both parties.

• Today’s economic calendar is rather thin with the Initial Jobless Claims in the US, followed by the FOMC’s Rate Decision. The European Commission will update its economic forecasts and ECB president Draghi speaks in Dublin.

Headlines

S&PEurostoxx 50NikkeiOilCRB

Gold2 yr US10 yr US

2yr DE10 yr DEEUR/USDUSD/JPYEUR/GBP

Page 2: Headlines - Microsoft · 2018-11-08 · late drama. Daily yield changes range between +2.9 bps (2-yr) and -0.2 bps (30-yr). The Fed is expected to give the go ahead for its tightening

Thursday, 08 November 2018

P. 2

US 10-yr yield heading for test of 3.26% cycle high

Core bonds lost ground yesterday as positive risk sentiment lifted main European indices over 1% higher while their US counterparts even recorded +2% gains. US mid-term elections as expected resulted in a split US Congress. The US dollar and US yields initially faced minor downward pressure, but that move didn’t persist. A rise in oil prices, inspired by rumours of 2019 production cuts, was eventually undone by higher inventory data. The US Treasury’s $19bn 30-yr Bond auction didn’t go well, causing a final sell-off at the very long end of the US curve. That curve still bear flattened in a daily perspective, despite the late drama. Daily yield changes range between +2.9 bps (2-yr) and -0.2 bps (30-yr). The Fed is expected to give the go ahead for its tightening cycle tonight as US mid-terms delivered no surprises and as the US economy is still firing on all cylinders. The German yield curve moved in similar fashion with yields 1.7 bps (2-yr) to 0.8 bps (30-yr) higher. 10-yr yield spread changes vs Germany remained broadly unchanged with Greece (-5 bps) and Italy (-7 bps) outperforming.

Asian stock markets trade positive this morning, but, with the exception of Japan, don’t copy WS’s exuberance. Chinese exports and imports surged in October anticipating the implementation of US tariffs. The US Note future treads water. We expect a neutral opening for the Bund.

The EC’s new autumn forecasts will be a good proxy to test BTP’s recent resilience. Italian media report on a projected budget deficit of 2.9% of GDP next year while breaching the 3% Maastricht ceiling in 2020. The EC think that growth will be 1% instead of the Italian government’s eyed 1.5% next year. The new forecasts come as Italy approaches the November 13 deadline to send its budget review to the EC. Italian political leaders so far showed no intention to deviate from their original plans, lining up for battle. We expect BTP’s to underperform today. The EC is generally expected to lower growth forecasts while keeping inflation estimates stable, but we don’t expect that to impact global trading. Speeches by ECB Villeroy, Coeure and Draghi are wildcards. US investors will be more interested in tonight’s FOMC meeting. We expect no big deviations in the new policy statement, confirming the Fed’s resilience to continue hiking the policy rate towards neutral levels. The next rate hike will normally take place in December. This message should keep the upward momentum of US yields going with the 10-yr yield heading for a test of the 3.26% cycle high. The German 10-yr yield hovers higher in the sideways band between 0.3% and 0.6%.

Rates

US yield -1d2 2,96 0,035 3,07 0,0210 3,24 0,0130 3,43 0,00

DE yield -1d2 -0,59 0,025 -0,15 0,0210 0,45 0,0130 1,08 0,01

US 10-yr yield ready to test cycle high (3.26%) as Fed is expected to give the go ahead for tightening cycle

US S&P 500 index extends stellar November performance, correcting after October sell-off

Af

Page 3: Headlines - Microsoft · 2018-11-08 · late drama. Daily yield changes range between +2.9 bps (2-yr) and -0.2 bps (30-yr). The Fed is expected to give the go ahead for its tightening

Thursday, 08 November 2018

P. 3

EUR/USD: dollar correction short-lived. Will Fed put USD again in the

driver’s seat?

EUR/GBP: sterling extends gain as market sees rising chance of

EU-UK Brexit deal

Post-election USD correction short-lived Markets assessed the impact of the US elections yesterday. A divided Congress was seen as leading to less aggressive fiscal stimulus, initially resulting in a modest decline of US yields and of the dollar. EUR/USD tested the 1.15 level. However, the decline is US yields was blocked by a solid equity rally. Yields rose further after a poor US 30-y government bond auction. In the end, US-German 2-y and 10-y spreads stayed at/ close to cycle peaks and the dollar reversed earlier losses. EUR/USD closed the day unchanged at 1.1426. USD/JPY (113.52) even succeeded a modest gain. This morning, Asian equities are a trading in positive territory with Japan outperforming. However, gains are modest given the strong rally in the US. The dollar stabilizes near yesterday’s closing levels. USD/JPY gains a few more ticks. The RBNZ applied a slightly more neutral tone. The kiwi dollar rises only marginally after recent rebound. Today, the EC will publish its autumn economic forecasts. Aside from the overall E(M)U forecast, markets will take a close look at the Italian forecasts. Low Italian growth and/or a rising budget deficit might be a slightly negative for the euro. However, the focus for global FX trading will be on the FOMC policy decision/statement. We expect the statement to be close to the September text and don’t expect the Fed to give much weight to recent volatility. Rate hike expectations for December and for next year shouldn’t change. If so, this might be mildly supportive for US yields and the dollar. The reaction of (US) equity markets is a wildcard. Over the previous days, the USD rebound lost some momentum. A EUR/USD test of the 1.13 support area was rejected last week and the outcome of the mid-term elections weighed temporarily on the USD. Even so, yesterday’s price action suggests that the downside in the USD remains well protected. The topside of the EUR/USD 1.13/1.16 looks solid. The Fed holding to its rate hike intentions might already be enough for EUR/USD to turn back south.

Over the previous days sterling was supported by headlines that a UK-EU Brexit deal might be finalized anytime soon. EUR/GBP near the 0.87 barrier. The Brexit headlines will dominate sterling trading today. In a-day-to-day perspective, there is no reason to row against the positive sterling tide, but PM May still has to convince her Party to approve the deal. Any noise from that corner might still cause GBP corrections. EUR/GBP nears a first important support area (0.8723/0.8681/0.8621)

Currencies

R2 1,2155 -1dR1 1,1996EUR/USD 1,1426 -0,0001S1 1,1510S2 1,1448

R2 0,91 -1dR1 0,9052EUR/GBP 0,8706 -0,0017S1 0,8628S2 0,8548

Page 4: Headlines - Microsoft · 2018-11-08 · late drama. Daily yield changes range between +2.9 bps (2-yr) and -0.2 bps (30-yr). The Fed is expected to give the go ahead for its tightening

Thursday, 08 November 2018

P. 4

Thursday, 8 November Consensus Previous US 14:30 Initial Jobless Claims 213k 214k 14:30 Continuing Claims 1634k 1631k 20:00 FOMC Rate Decision (Upper Bound) 2%-2.25% 2%-2.25% Japan Eco Watchers Survey Current SA (Oct) 49.5A 48.6 Eco Watchers Survey Outlook SA (Oct) 50.6A 51.3 03:00 Tokyo Avg Office Vacancies (Oct) 2.20A 2.33 UK 01:01 RICS House Price Balance (Oct) -10%A -2% Germany 08:00 Current Account Balance (Sep) 21.0b 15.3b 08:00 Imports/Exports SA MoM (Sep) 0.8%/0.4% -2.4%R/0.1%R China 8NOV Trade Balance (Oct) $34.01bA $31.7bR 8NOV Imports/Exports YoY (Oct) 21.4%A/15.6%A 14.3%/14.5% Events 10:00 ECB Publishes Economic Bulletin 11:00 European Commission Updates Its Economic Forecasts 16:00 ECB’s Villeroy de Galhau Speaks at Conference in Lyon 15:15 ECB's Coeure Speaks in Berlin 16:20 ECB President Draghi Speaks in Dublin

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 3,24 0,01 US 2,96 0,03 DOW 26180,3 545,29DE 0,45 0,01 DE -0,59 0,02 NASDAQ 7570,754 194,79BE 0,84 0,01 BE -0,49 0,02 NIKKEI 22486,92 401,12UK 1,53 -0,01 UK 0,82 -0,01 DAX 11579,1 94,76

JP 0,12 0,00 JP -0,14 -0,01 DJ euro-50 3246,16 38,74

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y 0,05 3,19 1,32 Eonia -0,3620 0,00005y 0,39 3,21 1,47 Euribor-1 -0,3690 0,0000 Libor-1 2,3169 0,000010y 0,99 3,29 1,69 Euribor-3 -0,3170 0,0000 Libor-3 2,5913 0,0000

Euribor-6 -0,2580 0,0000 Libor-6 2,8415 0,0000

Currencies Close -1d Currencies Close -1d Commodities Close -1d

EUR/USD 1,1426 -0,0001 EUR/JPY 129,72 0,10 CRB 191,34 0,13USD/JPY 113,52 0,09 EUR/GBP 0,8706 -0,0017 Gold 1228,70 2,40GBP/USD 1,3126 0,0027 EUR/CHF 1,1454 -0,0002 Brent 72,07 -0,06AUD/USD 0,7276 0,0029 EUR/SEK 10,3138 -0,0199USD/CAD 1,3112 -0,0012 EUR/NOK 9,5427 -0,0147

Calendar

Page 5: Headlines - Microsoft · 2018-11-08 · late drama. Daily yield changes range between +2.9 bps (2-yr) and -0.2 bps (30-yr). The Fed is expected to give the go ahead for its tightening

Thursday, 08 November 2018

P. 5

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