Tuesday, 14 October 2014
Rates: sentiment on equity markets remains key
We keep a close eye on the equity markets with both the German Dax and US S&P 500 below key necklines of bearish
multiple/double top formations. Weakness on equity markets remains a driver for core bonds. Can the sell-off halt today as
the US Q3 earnings session kicks off for real?
Currencies: risk-off rally keeps USD in the defensive
The dollar stayed under moderate pressure as the US equity sell-off continued. USD/JPY dropped temporary below the 107
level. Will the sell-off of risk assets slow down today and provide a bottom for the dollar? Soft UK CPI data might continue to
weigh on sterling.
Calendar:
Headlines
S&P
Eurostoxx50
Nikkei
Oil
CRB
Gold
2 yr US
10 yr US
2 yr EMU
10 yr EMU
EUR/USD
USD/JPY
EUR/GBP













•
In a holiday-thinned trading session, US Equities suffered further losses
yesterday. Weakness was led by energy and materials, while also health care
shares came under pressure on fears of Ebola spreading. The S&P dropped
1.65% and fell below a very important support level at 1904.
•
This morning, Asian shares try to shrug off Wall Street’s losses, with most
indices trading slightly higher. Reopening after the long weekend, the Nikkei
underperforms, losing 2.38% as the yen is strengthening again.
•
According to the FT, Catalan President Artur Mas is on the verge of calling off
the independence referendum planned for November in a press confidence
today, in a bid to avoid an all-out clash with the government in Madrid.
•
Brent crude oil prices ($88.19/barrel) dropped further yesterday and are
hovering around the lows of 2012 after Saudi Arabia and Kuwait suggested they
are unlikely to cut output soon.
•
Inflation expectations in the euro zone dropped further over the previous days
with the ECB’s closely-watched 5yr 5yr forward falling to new lows around
1.82%, suggesting that the ECB is losing credibility in its fight against too low
inflation.
•
Today, the eco calendar contains UK CPI inflation data, EMU industrial
production, German ZEW indicator and US NFIB small business confidence. EU
Finance Ministers meet in Luxembourg. In the US, the Q3 earnings season heats
up with results of JP Morgan, Wells Fargo, Citigroup and Intel (aft mkt).
P. 1
Tuesday, 14 October 2014
Rates
Modest losses for core bonds, as
initially calm returned to equities
US equities tank in late session
Successful BTP auction
2
5
10
30
US yield
0,4039
1,4811
2,2467
2,9959
-1d
-0,0240
-0,0555
-0,0390
-0,0181
2
5
10
30
DE yield
-0,0430
0,1620
0,8880
1,8060
-1d
0,0120
0,0200
0,0150
0,0400
Weak EMU production data
Downside risks ZEW and NIFB
sentiment
Calm returns to bond markets, not to equity markets
Yesterday, German bonds lost some ground, as the sentiment on risk initially
improved. Trading was thin in the absence of US bond investors (Columbus
market holiday) and amid an empty eco calendar. During the US equity session
(Wall Street remained open), the selling resumed and Wall Street closed an ugly
1.65% (S&P) down, a technically highly relevant move. It surprisingly didn’t
affect Bund trading anymore. In a daily perspective, German yields were up to
2 bps higher, the 30-yr slightly underperforming. US yields dropped in
overnight Asian trading by 2-5 bps. The 30-year yield trades below 3%. IntraEMU bond trading was rather uneventful too. France shrugged off the rating
outlook downgrade by S&P, while Finnish bonds ignored the loss of the AAA
rating (S&P). BTPs digested the fresh supply without problems (see below).
The eco calendar heats up today with the euro zone industrial production data,
the German ZEW indicator and US NFIB small business confidence. EU Finance
Ministers meet in Luxembourg and the US earnings season heats up with
results of JP Morgan, Johnson & Johnson, Wells Fargo, Citigroup, Intel…
After increasing by 1.0% M/M in July, euro zone industrial production is
forecast to have weakened again in August. The consensus is looking for a quite
strong 1.6% M/M decline, mainly due to very poor data from Germany (-4.0%
M/M). Other national production data were more mixed, but we see no reasons
for an upward surprise. In Germany, the ZEW indicator is forecast to extend its
downward trend in October. In September, the ZEW index weakened only
marginally, from 8.6 to 6.9, but a more significant drop is expected for October,
to zero. We continue to see risks for a downward surprise after very poor eco
data from Germany in recent weeks and as the ECB’s measures were unable to
boost sentiment. In the US, NFIB small business confidence is expected to
remain little changed in September. The consensus is looking for a drop from
96.1 to 95.9, but after the weakening in the manufacturing and nonmanufacturing ISM, we see risks for a weakening in NIFB small business
sentiment too.
Bund future (black) & Dax (orange) (intra-day): Bunds lower in
morning session as equities find their composure. Later on sideways
Bund trading despite steep fall S&P (not on chart)t
Following Dax last Friday, the S&P dropped below previous low,
painting bearish double top on charts. End uptrend? Given special
trading conditions yesterday, confirmation is needed today.
P. 2
Tuesday, 14 October 2014
R2
R1
BUND
S1
S2
151
150,78
150,41
149,97
149,45
-1d
-0,21
The Dutch debt agency taps the on the run 3-yr DSL (0.5% Apr2017) for €3.5B. In the
run-up to the auction, the bond cheapened around 2 bps in ASW spread terms. The
bonds also trades relatively cheap at the 2016-2019 part of the Dutch curve, which
should be supportive for the auction. The risk off climate is a positive for better
credits. Overall, we expect a plain vanilla outcome. So far, the Netherlands completed
around 90% of this year’s funding need.
The ECB holds its weekly MRO tender. Last week, 139 banks asked for €84.3B of
liquidity. Since the low take-up at the first TLTRO, allotted amounts at the MRO’s
remained rather low as well. Tonight we’ll report on the outcome and implications for
eonia and excess liquidity (currently €122B). Eonia still has negative fixings.
Overnight, most Asian equity markets trade with small gains (Japan
underperforms) despite yesterday’s horrible finish on WS. The S&P 500
shed 1.65% with the index below the 1905 neckline of a large double top.
If this break is confirmed, it would definitively change the technical picture
and open the path for correction towards 1800. The German Dax closed
higher yesterday, but failed to regain similar (previous) key support
(8900/9000 area; neckline multiple top formation). Reuters quoted Saudi
officials saying that they will accept oil prices down to $80/barrel for as long
a year or two. The oil price is currently testing key support around
$88/barrel (2012 low). In Spain, Arthur Mas called off the controversial
independence referendum planned for November. This could be
marginally supportive for Spanish bonds. The US Note future is off
yesterday’s highs this morning, but given yesterday’s extremely thin trading
condition (Columbus Day) we won’t draw conclusions from it for the Bund
opening.
Today, the eco calendar includes IP data in EMU and German Zew. Risks for
both are for a lower outcome, which could strengthen fears about the
global economic outlook (positive for bonds). For the IP that shouldn’t
surprise given weakness in national numbers. In the US, NFIB business
optimism might be lower than expected as well. Apart from the eco data,
the earnings season really kicks off with amongst others several US
financials. These could impact equity market sentiment which is an
important driver for bond markets of late. Any slowdown in the downward
correction of equities (which thus arrived at key levels), could stabilize
bonds at best (ie sideways trading for Bund between 148 & 150.50) while
a continuation of the sell-off could propel both the Bund and the US Note
future to new highs.
Bund future (Dec contract): Bullish picture remains intact with a test
of the contract high
US Note future: new contract high in thin trading conditions.
Confirmation today?
P. 3
Tuesday, 14 October 2014
Currencies
R2
R1
EUR/USD
S1
S2
1,2901
1,2791
1,2721
1,2606
1,2501
-1d
0,0051
USD/JPY drops (temporary) below
107
EUR/USD drifting higher in
consolidation pattern
Risk-off trade to slow today?
Eco calendar probably provides a
mixed picture for USD trading.
Earnings are a wildcard
Risk-off sentiment keeps the dollar in the defensive
After the sell-off of risky assets last week, there was no sign that the storm
had past, especially not for US equities, even as a lot of traders enjoyed a
holiday for Columbus Day. Initially, the negative fall-out of (US) equity
performance on core bond yields and on the dollar was limited, but a forceful
selling wave still hit the dollar after the close of the US equity markets.
USD/JPY dropped below the 106 barrier. EUR/USD spiked above the 1.2750
area. The correction top of 1.2791 stayed out of reach.
Overnight, there are tentative signs that the risk-off trade is petering out. Asian
equities show moderate gains (Japan is an exception, but had some negative
catching up to do after yesterday’s holiday). The tentative slowdown in the selloff of risky assets also gives the dollar some downside protection. USD/JPY
tries to regain the 107 mark. EUR/USD is drifting south in the 1.27 big figure.
Later today, the eco calendar is moderately interesting. In Europe, the ZEW
investor confidence and the EMU industrial production data will be released. It
is difficult to expect good news from these indicators. If the reaction on the
equity markets stays limited, it would be an indication that the risk-off trade is
slowing. Of late, the reaction of the dollar to the risk-off trade was a bit
ambiguous. However, if calm returns and if core bond yields bottom out, this
might be a positive for the dollar. In the US, NFIB small business confidence will
be published. A small setback from 96.1 to 95.8 is expected. We see a downside
risk. If so, it would be no good news for the dollar, especially not as the Fed is
softening it stance on policy normalisation in case growth slows. (Currency)
markets usually only react to the NFIB in case of a substantial surprise.
Today, the US earnings season starts in earnest , with several US banks and
Intel publishing results. Will corporates counterbalance the current market fear
on global growth? The market reaction will also affect market expectations on
the pace of the Fed normalisation process and thus on the dollar.
In a day-to-day perspective, the global picture for USD trading hasn’t change.
USD/JPY is still fighting an uphill battle. The dollar is also under moderate
pressure against the euro, but the correction top at 1.2791 stays in place. We
maintain the working hypothesis that this level might hold, but confirmation is
still needed. In this respect we keep a close eye at the short-term US yields. Will
the US 2-year yield drop further below 0.40% ?
USD/JPY: 107 mark under test
EUR/USD: consolidation in the 1.2500/1.2800 range
P. 4
Tuesday, 14 October 2014
LT downtrend remains in place.
ST consolidation
R2
R1
EUR/GBP
S1
S2
0,8066
0,8010
0,7917
0,7850
0,7755
-1d
0,0055
Will UK inflation data provide the BoE
an excuse to delay policy normalization?
EUR/GBP: tries to regain 0.79
EUR/GBP tries to regain the 0.79 level
The technical picture of EUR/USD deteriorated after the break below the key
1.2662 support level (Nov 2012 low). We have a LT negative bias on EUR/USD,
but recently, we were a bit surprised by the fast pace of the EUR/USD decline.
The trend is intact, but the price action last week suggests that the market was
too long USD. It might take time for the pair to work through oversold
conditions. The 1.2043/1.1877 support is the next LT target. The 1.2791
correction top is a first (tough?) resistance. We expect some more consolidation
in the 1.2501/1.2791 range. Within this range a sell-on-upticks approach is
preferred.
Will UK inflation put sterling further under pressure?
On Monday, trading in the sterling cross rates was again driven by global
factors as there was little news from the UK. BoE’s Carney in a speech kept a
soft tone, but said nothing really new. The late session rebound in EUR/USD
also propelled EUR/GBP above 0.79. Cable was also temporary affected by this
dollar sell-off, but the rebound was quickly reversed.
Overnight, BRC like-for-like retail sales were weak. The impact on sterling
trading was limited. By the publication of the report, the short-term setback of
cable was already finished. Today, the UK inflation/price data will be published.
Headline and core inflation are both expected to decline slightly to 1.4% Y/Y and
1.8% Y/Y. In a British context, this is already a low level, but a downside surprise
is not excluded. If so, it might signal that the BoE can also take its time to start
policy normalisation. Such a scenario would allow some further correction of
sterling.
Cable: consolidation in the 1.60/62 area
Strategy. Of late, we indicated that it might be difficult for EUR/GBP to break the
key 0.7755 support. After the rebound of sterling and the soft comments from
the BoE (minutes), investors are pondering the chances for further sterling gains.
The focus for sterling trading should now return to the economic fundamentals
and to the guidance from the BoE on policy normalization. We look for a more
pronounced uptick to reconsider EUR/GBP shorts. However, for now we are not
in a hurry as sterling momentum stays fragile. The breach above 0.79 is a further
short-term negative for sterling.
P. 5
Tuesday, 14 October 2014
Calendar
Tuesday, 14 October
US
13:30
Japan
01:50
01:50
UK
01:01
10:30
10:30
10:30
10:30
10:30
10:30
EMU
11:00
11:00
Germany
11:00
11:00
France
08:45
08:45
Italy
10:00
10:30
Belgium
15:00
Spain
09:00
Sweden
09:30
09:30
Events
US
DE
BE
UK
JP
IRS
3y
5y
10y
Currencies
EUR/USD
USD/JPY
GBP/USD
AUD/USD
USD/CAD
Previous
NFIB Small Business Optimism (Sep)
95.8
96.1
PPI MoM YoY (Sep)
Money Stock M2/M3 YoY (Sep)
A -0.1%/3.5%
A 3.0% / 2.5%
-0.2% / 3.9%
3.0% / 2.4%
BRC Sales Like-For-Like YoY (Sep)
CPI MoM YoY (Sep)
CPI Core YoY (Sep)
PPI Input NSA MoM YoY (Sep)
PPI Output NSA MoM YoY (Sep)
PPI Output Core NSA MoM YoY (Sep)
ONS House Price YoY (Aug)
A -2.1%
0.2% / 1.4%
1.8%
-0.5% / -6.7%
-0.1% / -0.3%
0.0% / 0.9%
--
1.3%
0.4% / 1.5%
1.9%
-0.6% / -7.2%
-0.1% / -0.3%
0.1% / 0.9%
11.7%
ZEW Survey Expectations (Oct)
Industrial Production MoM YoY (Aug)
--1.6% / -0.9%
14.2
1.0% / 2.2%
ZEW Survey Current Situation (Oct)
ZEW Survey Expectations (Oct)
15.0
0.0
25.4
6.9
Current Account Balance (Aug)
CPI EU Harmonized MoM YoY (Sep)
--0.3% / 0.4%
-2.2B
0.5% / 0.5%
CPI EU Harmonized YoY (Sep F)
General Government Debt (Aug)
-0.2%
--
-0.2%
2168.6B
Trade Balance (Aug)
--
137.8M
CPI EU Harmonised MoM YoY (Sep)
1.0% / -0.3%
0.1% / -0.3%
CPI MoM YoY (Sep)
CPI CPIF MoM YoY (Sep)
0.5% / -0.1%
0.5% / 0.6%
-0.1% / -0.2%
0.0% / 0.5%
JP Morgan (13:00), Johnson & Johnson (13:45), Wells Fargo (14:00), Citigroup (14:00),
Intel (aft mkt) Announce Q3 Earnings
EU Finance Ministers Meet in Luxembourg
09:00
10-year
Consensus
td
2,25
0,89
1,18
2,17
0,50
- 1d
-0,04
0,02
0,01
-0,06
-0,01
EUR
0,271
0,461
1,103
USD (3M)
1,068
1,650
2,351
1,27165
107,135
1,606
0,8779
1,1216
- 1d
0,0044
-0,15
-0,0057
0,0056
0,0018
GBP
1,338
1,714
2,256
US
DE
BE
UK
JP
2 -year
td
0,40
-0,05
0,01
0,62
0,07
- 1d
-0,02
0,01
0,01
-0,08
0,00
DOW
NASDAQ
NIKKEI
DAX
DJ euro-50
EUR
Euribor-1
Euribor-3
Euribor-6
-1d
0,01
0,08
0,18
-2d
0,00
0,00
0,00
USD
Eonia EUR
Libor-1 USD
Libor-3 USD
Libor-6 USD
Currencies
EUR/JPY
EUR/GBP
EUR/CHF
EUR/SEK
EUR/NOK
136,18
0,7917
1,2085
9,0702
8,2412
STOCKS
16321
ermissioned
14937
8812,43
2998
- 1d
16321,07
#VALUE!
14936,51
8812,43
2998,32
td
-0,018
0,51
0,56
0,70
-1d
-0,012
0,51
0,56
0,70
CRB
276,721
1,12
GOLD
1234,4
0,00
- 1d Commoditie
0,22
0,0065
- 1d
0,0009
-0,07
0,01
BRENT
88,26
-0,69
P. 6
Tuesday, 14 October 2014
Contacts
Brussels Research (KBC)
Piet Lammens
Peter Wuyts
Joke Mertens
Mathias van der Jeugt
Dublin Research
Austin Hughes
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Jan Bures
Petr Baca
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David Nemeth
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This
non exhaustive
is based
short developments
term forecasts
for expected
developments
This non-exhaustive
informationinformation
is based on short-term
forecasts on
for expected
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.
P. 7