1. society
2. work
3. unemployment

Tuesday, 28 October 2014
Rates: Interesting US eco calendar, but market impact likely limited
Today, the US eco calendar heats up. We see risks for a strong consumer confidence and core durable orders. However, the
market movement could be very limited today and tomorrow with investors anticipating the outcome of the FOMC meeting.
Currencies: AQR nor weak IFO indicator able to break deadlock
Largely sideways trading in EUR/USD, as disappointing IFO limits rebound possibilities for the euro. Ahead of the FOMC
meeting, dollar bulls stay uneasily on the sidelines. Fears for a delay in ending the QE programme? Today, we might get
more of the same sideways trading.
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









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
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•
After a volatile session, US Equities ended broadly unchanged. The S&P dropped
0.15% led by losses in materials and energy shares. This morning, also Asian
shares trade mixed. Chinese stocks outperform, gaining up to 2% after a fiveday losing streak.
•
The euro zone is still lagging behind other countries outside the bloc in
implementing the Basel III capital rules, rating agency Moody’s said, as another
11 banks would have failed the stress tests if the full Basel III rules had been
applied.
•
Bank of Japan Governor Kuroda said in a speech before parliament that the 2%
inflation goal will be met around the next fiscal year, starting in April and
added that debates about an exit strategy would start during that year, although
he added there is no pre-set deadline for ending its massive monetary stimulus.
•
In an effort to avert a fight with Europe, France said yesterday it would cut its
budget deficit by an additional €3.6 billion, which would boost the country’s
structural adjustment efforts next year to above 0.5%. Additional resources
come from lower than expected costs on interest payments and contributions to
the EU’s budget.
•
Japanese retail sales picked up sharply in September, rising by 2.3% Y/Y well
above the market consensus of 0.9% Y/Y, suggesting that consumer spending is
starting to recover from sales tax increase in April.
•
Today, the US eco calendar heats up with the durable goods orders, Conference
Board’s consumer confidence, the Richmond Fed index and S&P CS house prices.
The Swedish Riksbank is expected to cut rates.
P. 1
Tuesday, 28 October 2014
Rates
Core bonds profit from European
equity weakness and disappointing
German IFO
2
5
10
30
US yield
0,3857
1,4824
2,2534
3,032
-1d
-0,0083
-0,0346
-0,0338
-0,0262
2
5
10
30
DE yield
-0,0390
0,1630
0,8740
1,7500
-1d
-0,0090
-0,0140
-0,0310
-0,0510
Upside risks for core durables and US
consumer confidence
Richmond Fed and headline durables
more or less in line with consensus
On Monday, global core bonds profited from European equity weakness (buythe-rumour, sell-the-fact on AQR) and a disappointing German IFO indicator.
The move fizzled out in US dealings, anticipating the FOMC. At the end of the
session, the German yield curve bull flattened with yield changes ranging
between -0.8 bps (2-yr) and -3.8 bps (30-yr). In the US, changes on the yield
curve are more modest varying between -0.4 bps (2-yr) and -0.8bps (10-yr). On
intra-EMU bond markets, initial spread narrowing was reversed with the shift
in sentiment. 10-yr yield spreads versus Germany are narrowly wider with Italy
(+6 bps), Portugal (+16 bps) and Greece (+21 bps) underperforming. The
underperformance of Italy vis-à-vis Spain can be traced to the ECB’s stress tests
where Italy was the big underperformer on a country-level.
Today, the eco calendar heats up in the US with the durable goods orders,
Conference Board’s consumer confidence and the Richmond Fed index. The
Swedish central bank will decide on rates (consensus expects rate but from
0.25% to 0.05%) and the Fed will start its two-day FOMC meeting. Italy (CTZ &
BTPei) and the US (2Yr notes) tap the market.
In July and August, US durable goods orders showed strong month on month
volatility due to large swings in Boeing orders. In September, volatility is
expected to have reduced again and the consensus is looking for a 0.5% M/M
increase. Also durable orders ex transportation are forecast to have increased by
0.5% M/M. After strong business confidence indicators of recent, we believe
that the risks for the ex-transportation reading are on the upside.
Transportation orders might be somewhat softer as vehicle orders slowed
somewhat recently. US Conference Board’s consumer confidence weakened
significantly in September as the poor unemployment figures weighed on
sentiment. For October, a limited improvement from 86 to 87 is forecast. We
see risks for an upward surprise as labour market conditions improved again and
also other consumer confidence indicator picked up recently. Turbulence on
financial markets and fears of too low inflation are however risk factors. Finally,
the Richmond Fed manufacturing index is expected to have weakened slightly
in October, from 14 to 11, after reaching a 3.5 year high in September. Earlier
released indicators for October showed a mixed picture and the ISM weakened
already somewhat in September. We believe that the risks, if any, might be for a
downward surprise.
EuroStoxx Banks index: buy-the-rumour, sell-the-fact after ECB
stress tests. Technically, bearish engulfing signals return to 125
recent low
Spanish/Italian 10-yr yield spread: ECB stress test results provides
impetus for further widening in favour of Spain
P. 2
Tuesday, 28 October 2014
R2
R1
BUND
S1
S2
152,49
150,77
150,56
149,91
147,63
-1d
0,39
The ECB holds its weekly MRO tender. Last week, 144 banks asked for €92.9B 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 €91B). Since last week,
when the MRO operation drained another €10B+ of liquidity, Eonia fixes slightly
positive again. Tomorrow, the ECB also holds a 3-month LTRO tender (€6.79B
redeeming).
In the US, the treasury starts its end-of-month refinancing operation with a
$29B 2-yr Note auction. Currently, the WI is trading around 0.415%. The
Treasury continues tomorrow with a $15B 2-yr FRN auction and a $35B 5-yr
Note auction. On Thursday, a $29B 7-yr Note auction is scheduled.
Overnight, Asian equity markets trade mixed with a Chinese
outperformance (>+1.50%) after a 5-day losing streak. After Italy, also
France indicated willingness to adapt its draft budget in an effort to keep its
deficit in line with EC requests and avoid an open conflict with the EU’s
executive arm. This could be marginally positive for French bonds today.
Twitter and UBS earnings disappointed which is a negative for risk
sentiment. The US Note future trades moderately higher, suggesting a
slightly stronger Bund opening as well.
Today, all eyes are on the US with durables, consumer confidence and
Richmond Fed Index. We see risks for the most important releases on the
upside of expectations which is a negative for core bonds. However, tonight
the FOMC meeting starts which could limit market movements today and
tomorrow. We expect the Fed to stop its QE-3 programme and risks for
changing the forward guidance are on the hawkish side of expectations
(negative for US treasuries with underperformance 5-yr and widening
US/EU differential). Sentiment on risk (equity markets) remains an
important factor for core bonds as well.
Technically, the German Bund closed a third straight day below the
uptrend line since June. This is a first indication that the bull run slows. A
sustained drop below 149.91 would change the ST technical picture to
neutral. For the US Note future, attention shifts to Wednesday’s FOMC
meeting which likely slows trading.
German Bund future: drop below uptrendline first indication that
bull run slows. Break below 149.91 changes ST picture to neutral
US Note future: Countdown to the Fed started
P. 3
Tuesday, 28 October 2014
Currencies
Dollar slightly lower ahead of FOMC
R2
R1
EUR/USD
S1
S2
1,2886
1,2840
1,2702
1,2606
1,2501
-1d
0,0014
Dollar slightly lower in quiet,
uneventful trading session
Technical pictures unchanged
Uneventful trading overnight
On Monday, the dollar was under some slight downward pressure, but moves
were insignificant from a technical point of view. It seems that, despite a few
interesting news items, investors are largely sidelined awaiting the FOMC
meeting that starts today. That keeps EUR/USD firmly in its sideways range.
Investors shrugged off the AQR/stress test results. EUR/USD fell back on a very
disappointing German IFO business sentiment report. In the afternoon session,
it went up again on WSJ rumours on a possible decision of the FOMC to delay
to end of QE as an appreciating dollar weighs on exports. However, once more
resistance kicked in and the EUR/USD pair slid lower towards 1.27 in the close, a
30 pips daily gain. USD/JPY showed less volatility and fell consistently (but very
gradually) throughout the session to close at 107.82 (108.16 prev)
Overnight, Asian equities trade rather uneventful near opening levels with the
exception of China that gains about 1.5%, ending a 5 day losing streak. There is
little news behind the gains though. Twitter disappointed markets with its
results. UBS missed profit expectations on litigation charges. Sentiment on risk is
fairly neutral at this stage, reflected in stable US Treasuries. FX main crosses are
little changed too. EUR/USD changes hands around 1.2780; USD/JPY around
107.85.
USD/JPY rebound running into resistance
Today, interesting US eco data,
but upcoming FOMC will keep
investors sidelined
EUR/USD: consolidation to continue. Awaiting FOMC decision?
Today, European eco data are few and second tier, limited to Italian business
confidence. US data, durables, S&P house prices, consumer confidence and
Richmond Fed survey ones are slightly more important, but we see outcomes
mixed versus consensus. If confirmed, they would be neutral for Fx trading.
Whatever, ahead of the FOMC decisions tomorrow, the data shouldn’t have
too much impact. Regarding the FOMC meeting, we see the FOMC end its QE
purchase programme, despite some earlier comments of St-Louis Fed Bullard
who suggested that they could postpone the end of QE buying. We see no good
reason for such postponement. Economic data were sufficiently strong since the
previous FOMC with the unemployment rate also dropping to 5.9% and inflation
broadly stabilizing. Finally, calm returned to markets. If we and most analysts
are wrong on this point, the dollar should sell off. Secondly, what about the
forward guidance. Most likely it will be kept at least until the December meeting
when new forecasts are available and a press conference follows. An, albeit
P. 4
Tuesday, 28 October 2014
unlikely change in the forward guidance like replacing the considerable period of
time phrase, would likely give the dollar a boost. It will be seen as a step closer
to the rate lift-off. While we have a longer term dollar bullish view, we wouldn’t
anticipate a resumption of the dollar rally on the FOMC decision. Most likely, the
Fed will be steady as she goes keeping EUR/USD in its 1.25 to 1.2995 range. A
weakening of the dollar toward 1.2995 is worth a dollar buy, as would be a
break below 1.25. However, none of these is likely on the FOMC decision.
LT downtrend remains in place.
Consolidation currently
R2
R1
EUR/GBP
S1
S2
0,8153
0,8066
0,7879
0,7850
0,7755
-1d
-0,0004
Sterling ekes out some, albeit modest
and technically irrelevant gains
LT sterling uptrend intact, but
consolidation ongoing
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.
The trend is intact, but the price action over the last two weeks suggests that
the market was too long USD. In the meantime, dollar overbought conditions
have been worked off. The 1.2043/1.1877 support is the next LT target, but a
drop below 1.25 is needed before the picture becomes again dollar bullish ST. A
re-break above 1.2995 would be really significant and question longstanding
EUR/USD downtrend. This is not our preferred scenario though.
Sterling little changed in absence of firm impetus
Yesterday, EUR/GBP followed the EUR/USD price profile till early afternoon
trading. EUR/GBP fell in the morning session, following euro strength in the
Asian session. A better than expected CBI retail sales report very temporarily
helped EUR/GBP setting an intraday low at 0.7862, but finally the pair ended
virtually unchanged (0.7877). Given the difference in eco releases between UK
(stronger) and EMU (weaker), that’s a minor negative for sterling. Cable went
higher in lockstep with EUR/USD in the afternoon trading (dollar weakness).
Overnight, sterling trades little changed versus dollar and euro. Late eve
yesterday, BoE deputy governor and MPC member Shafik said she doesn’t see
significant evidence of inflationary pressures and has set a high bar for raising
rates. She sees mixed data, but looks to wages and unit labour costs as the most
important once. Shafik is since summer MPC member and voted always with the
majority. Her comments won’t have a major impact on sterling trading.
Today, the UK eco calendar is empty and the EMU one unattractive. Therefore,
the EUR/GBP direction will be set by the overall sentiment and by EUR/USD in
particular. So, sideways trading looks most likely. Of late, we had a sell-on
upticks approach for EUR/GBP. We maintain the view that the trend in EUR/GBP
stays downward longer term. Short-term, the trend shows some signs of fatigue.
The 0.7850/0.7755 is a tough support, key resistance stands around 0.8066. We
take a more neutral approach on the EUR/GBP cross rate short-term.
EUR/GBP: 0.7850 area is strong support. Sterling advance peters out
Cable in consolidation mode
P. 5
Tuesday, 28 October 2014
Calendar
Tuesday, 28 October
US
13:30
13:30
14:00
15:00
15:00
Japan
00:50
00:50
06:00
Germany
08:00
Italy
10:00
10:00
Spain
09:00
09:00
Sweden
09:30
09:30
Events
US
US
DE
BE
UK
JP
IRS
3y
5y
10y
Currencies
EUR/USD
USD/JPY
GBP/USD
AUD/USD
USD/CAD
Previous
Durable Goods Orders (Sep)
Durables Ex Transportation (Sep)
S&P/CS 20 City MoM SA / YoY (Aug)
Consumer Confidence Index (Oct)
Richmond Fed Manufact. Index (Oct)
0.5%
0.5%
0.15%/5.70%
87.0
11
-18.2%
0.7%
-0.50%/6.75%
86.0
14
Retail Trade MoM YoY (Sep)
Large Retailers’ Sales (Sep)
Small Business Confidence (Oct)
A 2.7% / 2.3% 1.9% / 1.2%
1.6%
A 0.5%
47.6
A 47.4
Import Price Index MoM YoY(Sep)
A 0.3%/-1.6%
-0.1%/-1.9%
Business Confidence (Oct)
Economic Sentiment (Oct)
95.0
--
95.1
86.6
Total Mortgage Lending YoY (Aug)
House Mortgage Lending YoY (Aug)
---
13.3%
28.8%
Riksbank Interest Rate
Retail Sales MoM NSA YoY(Sep)
0.10%
-0.5%/3.2%
0.25%
1.9%/4.6%
UBS (06:45), Nomura (07:00), Pfizer (bef mkt), Facebook (Aft mkt) publish Q3
earnings
Federal Reserve FOMC Meeting
ECB holds weekly MRO tender
BoE’s Cunliffe Speaks at Event in Cambridge
CTZ (€2-2.5B Aug2016) & BTPei (€0.5-1B 2.35% Sep2024 & €0.5-1B 3.1% Sep2026)
Auction
2Yr Notes Auction ($29B)
28OCT-29OCT
11:10
18:30
Italy
10-year
Consensus
td
2,25
0,88
1,22
2,21
0,46
- 1d
-0,04
-0,03
-0,03
-0,03
-0,01
EUR
0,294
0,487
1,112
USD (3M)
1,031
1,642
2,377
1,27025
107,87
1,612
0,8817
1,1231
- 1d
0,0016
-0,21
0,0023
0,0017
0,0004
GBP
1,348
1,742
2,276
US
DE
BE
UK
JP
2 -year
td
0,39
-0,04
0,03
0,63
0,03
- 1d
-0,01
-0,01
0,00
-0,05
0,00
DOW
NASDAQ
NIKKEI
DAX
DJ euro-50
EUR
Euribor-1
Euribor-3
Euribor-6
-1d
0,01
0,09
0,19
-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
136,98
0,7879
1,2057
9,2736
8,3761
16818
ermissioned
15330
8902,61
2999
- 1d
16817,94
#VALUE!
15329,91
8902,61
2998,84
td
0,013
0,51
0,56
0,69
-1d
-0,005
0,51
0,56
0,69
- 1d Commoditie
CRB
-0,10
270,4075
-0,0001
- 1d
0,19
-0,0007
0,09
0,03
GOLD
1228,5
-0,46
STOCKS
BRENT
85,56
-0,54
P. 6
Tuesday, 28 October 2014
Contacts
Brussels Research (KBC)
Piet Lammens
Peter Wuyts
Joke Mertens
Mathias van der Jeugt
Dublin Research
Austin Hughes
Shawn Britton
Prague Research (CSOB)
Jan Cermak
Jan Bures
Petr Baca
Bratislava Research (CSOB)
Marek Gabris
Budapest Research
David Nemeth
Global Sales Force
Brussels
Corporate Desk
Institutional Desk
France
London
Frankfurt
Singapore
+32 2 417 45 82
+32 2 417 46 25
+32 2 417 32 65
+44 207 256 4848
+49 69 756 19372
+65 533 34 10
+420 2 6135 3578
+420 2 6135 3574
+420 2 6135 3570
Prague
+420 2 6135 3535
+421 2 5966 8809
Bratislava
+421 2 5966 8820
+36 1 328 9989
Budapest
+36 1 328 99 85
+32 2 417 59 41
+32 2 417 32 35
+32 2 417 30 59
+32 2 417 51 94
+353 1 664 6889
+353 1 664 6892
ALL OUR REPORTS ARE AVAILABLE ON WWW.KBCCORPORATES.COM/RESEARCH
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