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Friday, 14 November 2014
Rates: Stronger data vs risk sentiment?
Today, the eco calendar heats up. EMU Q3 GDP will likely show an upward surprise following stronger French data this
morning. Risks for US eco data are also on the upside of expectations. Better eco figures should weigh on (especially US)
bonds. Ahead of the weekend, possible profit taking on equities can limit the downside in bonds.
Currencies: Dollar to try a new up-leg?
Yesterday, the dollar took a breather as there was no clear theme to guide trading. This morning, further USD/JPY gains are
supporting the dollar across the board. The trade-weighted dollar is nearing the cycle top. The EMU GDP probably won’t be
that bad, but US data can support further dollar gains. Sterling extends its correction after the BoE inflation report.
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













•
US equities ended again flat with the S&P showing a potential doji. Overnight,
Asian stock markets are mixed. Japan outperforms on more yen weakness.
•
This morning, French Q3 GDP data showed 0.3% Q/Q growth beating 0.1% Q/Q
consensus. German GDP was in line with expectations at 0.1% Q/Q.
•
Vladimir Putin has been accused of being a bully and trying to “recreate the lost
glories of Tsarism and the Soviet Union” by his Australian host, ahead of this
weekend’s G20 summit in Brisbane.
•
Brent oil prices dropped further below $80/barrel (currently $77.7/barrel).
Yesterday, the Saudi oil minister dismissed “price war” claims. He kept quiet on
whether Saudi Arabia would cut output.
•
The trade-weighted dollar index is trading north of 88 and is nearing the cycle
top. Yen strength, euro weakness and a decline in commodity prices inspire
more ‘by default’ USD buying.
•
Today, the eco calendar heats up with EMU Q3 GDP, US retail sales and
Michigan consumer confidence. EU Finance Ministers meet in Brussels and G20
leaders start their Summit in Brisbane
P. 1
Friday, 14 November 2014
Rates
Core bonds eked out modest gains
2
5
10
30
US yield
0,5274
1,6333
2,3523
3,0769
-1d
-0,0158
-0,0180
-0,0230
-0,0253
Stronger EMU GDP data?
2
5
10
30
DE yield
-0,0460
0,1050
0,7970
1,6960
-1d
-0,0050
-0,0140
-0,0270
-0,0250
More US eco data strength with
retail sales and Michigan
confidence?
On Thursday, global core bonds eked out modest gains. During European
trading hours, the ECB’s survey of professional forecasters was downbeat on
inflation and ECB Coeure sounded dovish. Both factors underpinned demand.
In the US, weekly claims were slightly higher than expected and the $16B 30-yr
Bond auction was weak. At the end of the day, changes on the German yield
curve ranged between -1.1 bp (10-yr) and +0.2 bps (2-yr). The US yield curve
shifted 2.4 bps to 3.4 bps lower. On intra-EMU bond markets, 10-yr yield
spreads versus Germany widened up to 4 bps.
Today, the eco calendar heats up, both in the euro zone and US with the first
estimate of EMU Q3 GDP, the final reading of euro zone October CPI, US retail
sales and Michigan consumer confidence. EU Finance Ministers meet in Brussels
and G20 leaders start their Summit in Brisbane.
According to the preliminary estimate, euro zone HICP inflation picked up from
0.3% Y/Y to 0.4% Y/Y in October, in line with the consensus estimate. We have
no reasons to expect a change from the first estimate, although a downward
surprise is not entirely excluded. More attention will probably go out to the first
estimate of euro zone Q3 GDP. Second quarter GDP was revised upwards to
0.1% Q/Q from 0.0% Q/Q. Also for the third quarter, a growth rate of 0.1% Q/Q
is expected. The breakdown will not yet be available. This morning, French data
were stronger than expected and German ones in line with consensus.
Therefore, we believe that the risks for the euro area reading are tilted towards
an upward surprise. Industrial production weakened in Q3 and also consumer
spending was probably quite poor. In the US, retail sales are forecast to have
increased slightly in October, following a soft September month. The consensus
is looking for an increase by 0.2% M/M following a 0.3% M/M decline in
September. The headline figure will be depressed by gasoline station sales due
to the sharp drop in the oil price, while vehicle sales were probably close to flat.
Retail sales excluding autos and gas are forecast to have increased by 0.4%
M/M. For both the headline figure and the core reading we see risks for an
upward surprise supported by strong consumer sentiment. Finally, also U. of
Michigan consumer confidence is forecast to remain strong in November. The
consensus is looking for a limited increase from 86.9 to 87.5. We continue to see
upside risks as both the weekly Bloomberg indicator and Conference Board’s
consumer confidence strengthened further recently and are hovering around
post-crisis highs. The lower oil price together with improving labour market
conditions are probably supporting sentiment.
US Note future (black) and S&P future index (orange): US Note
future gained in US dealings as US equities came under modest
pressure
Brent crude oil: 5-month slump continues with price for Brent crude
dipping below $78/barrel
P. 2
Friday, 14 November 2014
R2
R1
BUND
S1
S2
152,49
151,8
151,62
149,91
147,63
-1d
-2,59
In the US, the treasury ended its mid-month refinancing operation with a
weak $16B 30-yr Bond auction. The bid cover was light (2.29 vs 2.46 average
over the past year) and the auction stopped with a tail of more than a full basis
point. As with the 10-yr Note auction earlier this week, the buyside takedown
was low with especially weakness in the direct bid.
Overnight, Asian equities trade mixed. Chinese stocks underperform while
Japanese stocks profit from more yen weakness. The US Note future trades
with a downward bias overnight suggesting a slightly lower opening for the
Bund.
Today, the eco calendar heats up both in Europe and in the US. During
European dealings, the Q3 EMU GDP release is the eye-catcher. This
morning, French GDP was stronger at 0.3% Q/Q. The German figure was in
line with expectations at 0.1% Q/Q. A negative surprise for GDP is thus
normally excluded which could push the Bund somewhat lower. In the US,
we get retail sales and Michigan confidence. Risks are on the upside of
expectations in which case we finally hope to see US rates move further
higher. Eco data are thus expected to be a negative.
Apart from the data, we look at equity markets. Ahead of the weekend,
cautiousness with regard to the escalating conflict in Ukraine could be
important as well. Profit taking on European equity markets can inspire
bond gains. Also in the US, profit taking can occur. The S&P 500 shows signs
of topping off this week. Yesterday’s trading showed a potential ST trend
reversal doji at the high.
The FOMC changed its forward guidance to include the data-dependence
of the lift-off date. We argued that US Treasuries would become more
sensitive to US eco data. Last week, decent to stronger data failed to trigger
substantially higher rates. We are disappointed but our main view remains
that the FOMC verdict opened the way for a new downleg of US Treasuries,
especially if accompanied by stronger data. Today’s retail sales are the next
big release. Any spill-over from higher rates to Europe will be very limited,
with the ECB clearly studying the option to ease policy further. The
downside in the Bund seems well protected (149.91 first support).
German Bund future: dovish ECB suggests that downside is
protected
US Note future: hawkish FOMC statement opened way for new
down-leg. Today’s retail sales next big item on calendar
P. 3
Friday, 14 November 2014
Currencies
USD again better bid
R2
R1
EUR/USD
S1
S2
1,2771
1,2577
1,2428
1,2358
1,2242
-1d
-0,0010
Dollar restarts rally after taking a
breather
USD/JPY takes the lead in the USDrally.
Will US data finally be strong
enough to support the USD
currency?
Yesterday, there was again no clear driver for trading on global markets and
for USD trading in particular. EUR/USD traded with a slight upward bias during
most of the day, but remained in well-known territory in the 1.24 big figure.
Declining core bond yields and slightly disappointing US jobless claims
probably triggered some further offloading of USD longs against the euro.
USD/JPY drifted sideways in the 115 big figure.
Overnight, the dollar received again a better bid. USD/JPY is setting new multiyear highs as markets are waiting PM Abe’s decision whether he will call an early
election and delay a 2015 sales tax hike or not. The Japanese Q3 GDP data will
be an important input for this decision. Japanese equities still outperform on the
USD/JPY rally. USD strength against the yen initially had only limited impact on
EUR/USD. However, later in Asia, the dollar is gaining momentum across the
board. EUR/USD has already reversed yesterday’s rebound and is trading in the
1.2430 area. The traded-weighted dollar has regained the 88 level and is also
within reach of the cycle top.
Later today, the EMU CPI is expected to be confirmed at 0.4% J/J. The focus will
be on EMU Q3 GDP. This morning, French GDP surprised on the upside (0.3%
Q/Q). German growth was reported as expected (0.1% Q/Q). The consensus
expects 0.1% Q/Q EMU growth. After the German and the French reports, the
risk for a negative surprise is probably out of the way. However, the reaction of
the euro is lukewarm. There is hardly any rebound. Dollar strength prevails. In
the US, the retail sales, import prices and consumer confidence from the
University of Michigan are on the agenda. We see risk for better than expected
retail sales and consumer confidence. Once again, the question is whether this
time it will be enough to push (short-term) US interest rates and the dollar
higher. We also keep an eye at public appearances from Fed (Bullard, Fischer)
and ECB (Coeure) members. The price moves of oil and the developments in
Ukraine remain wildcards for USD trading, too. At the margin we see those
factors a slightly more in favour of the dollar than of the euro. Is EUR/USD ripe
for a retest of the lows in the 1.2358 area? The odds are apparently a bit better
compared to yesterday despite the first Q3 EMU data.
USD (trade-weighted): near the cycle top
EUR/USD: consolidation continues, but topside well capped.
P. 4
Friday, 14 November 2014
Broader picture. We have a bullish LT view on the dollar. The difference in policy
stance between the US and Europe suggests more dollar gains against the euro
further down the road. Draghi reinforced this view at last week’s ECB press
conference, but it was not enough to trigger a sustained EUR/USD decline after
the US payrolls. From a technical point of view, the break below 1.25 opens the
way to the 1.2043/1.1877 key support area (July 2012 low/Crisis low June
2010).We think that those levels are feasible. Strong USD data might help to
go that way. However, of late US rates and the dollar reacted very reticent to
good US data. This suggests that there was/is still some time needed to digest
the recent decline of EUR/USD. Look to sell into any more pronounced upticks.
Break below 1.25 is highly
relevant for EUR/USD.
USD/JPY spiked sharply higher after the BoJ policy decision. The pair took out
the recent top and even the August 2008 high (110.66).The pair set a new
correction top north of 116.10 earlier this week and reached a new multi-year
top this morning. Technically there is no big hurdle anymore till the
psychological 120 mark and the major LT 2007 top (124.11). These levels are
far away, but the break suggests that the move in USD/JPY might still have
some way to go, both due to yen weakness and further USD strength. We still
join the trend, however partial stop-profit protection of USD/JPY longs can be
considered going into Monday’s Japan Q3 GDP and the decision on early
elections. Risk for some kind of buy the rumour sell the fact reaction?
The road to the 1.20 area is
open longer term
R2
R1
EUR/GBP
S1
S2
0,8066
0,8000
0,7936
0,7799
0,7755
-1d
0,0052
LT EUR/GBP downtrend intact, but
downside momentum slows
More sterling losses after the BoE inflation report
Yesterday, sterling extended the decline that started after the publication of the
BoE report and the soft inflation comments from BoE Carney on Wednesday. A
poor RICS house price balances added to sterling selling. EUR/GBP drifted higher
to the mid 0.79 area. Cable set a new correction low below the 1.57 level.
This morning, sterling remains in the defensive. EUR/GBP tries to move north of
0.7950. Cable is also hit by broad-based USD strength. The pair is trading in the
1.5670 area at the momentum of writing.
Later today , only the September UK construction data are on the agenda. The
figure is a bit outdated and we don’t expect a lasting impact on sterling trading.
Of late, the 0.7755/0.78 area proved to be tough support for EUR/GBP. Earlier
this week, the short-term sterling negative sentiment was reinforced by a softer
than expected BoE inflation report. We continue to look out for signs of the
EUR/GBP rebound losing momentum. For now, such a signal is not yet available.
More consolidation or even a limited upside correction might be on the cards.
We don’t row against the tide (yet).
EUR/GBP: correction after BoE inflation report extended
Cable downtrends continues
P. 5
Friday, 14 November 2014
Calendar
Friday, 14 November
US
14:30
14:30
14:30
14:30
15:55
16:00
16:00
16:00
UK
10:30
EMU
11:00
11:00
11:00
Germany
08:00
France
07:30
08:45
08:45
Italy
10:00
10:30
Belgium
15:00
Events
14-16 November
10:00
12:00
15:10
22:00
22:00
22:00
10-year
US
DE
BE
UK
JP
IRS
3y
5y
10y
Currencies
EUR/USD
USD/JPY
GBP/USD
AUD/USD
USD/CAD
Consensus
Previous
Retail Sales Advance MoM (Oct)
Retail Sales Ex Auto and Gas (Oct)
Retail Sales Control Group (Oct)
Import Price Index MoM YoY (Oct)
Univ. of Michigan Confidence (Nov P)
Business Inventories (Sep)
Mortgage Delinquencies (3Q)
MBA Mortgage Foreclosures (3Q)
0.2%
0.5%
0.4%
-1.5% / -1.7%
87.5
0.2%
---
-0.3%
-0.1%
-0.2%
-0.5% / -0.9%
86.9
0.2%
6.04%
2.49%
Construction Output MoM YoY (Sep)
3.8% / 4.5%
-3.9% / -0.3%
CPI MoM YoY (Oct)
CPI Core YoY (Oct F)
GDP QoQ YoY (3Q A)
0.0% / 0.4%
0.8%
0.1% / 0.7%
0.4% / 0.4%
0.7%
0.0% / 0.7%
GDP QoQ YoY (3Q P)
A:0.1%/1.2%
-0.1% /1.4%
GDP QoQ YoY (3Q P)
Non-Farm Payrolls QoQ (3Q P)
Wages QoQ (3Q P)
A:0.3%/0.4%
---
-0.1%/0.0%
0.1%
0.4%
GDP QoQ YoY (3Q P)
General Government Debt (Sep)
-0.1% / -0.4%
--
-0.2% / -0.2%
2148.4B
Trade Balance (Sep)
--
-1154.3M
G20 Leaders Hold Summit in Brisbane, Australia
EU Finance Ministers Meet on EU Budget for 2015
ECB Announces 3-Year LTRO Repayment
Fed's Bullard Speaks on U.S. Economy in St. Louis
ECB's Coeure Speaks on Monetary Policy Spillovers and Cooperation in Global Economy
Fed Vice Chairman Stanley Fischer moderates panel at Fed/ECB Event
Fed's Powell takes part in a panel at a Fed/ECB event
td
2,35
0,80
1,10
2,18
0,48
- 1d
-0,02
-0,03
-0,01
-0,02
-0,02
EUR
0,251
0,404
1,000
USD (3M)
1,150
1,770
2,455
1,2428
116,26
1,5655
0,8682
1,1390
- 1d
-0,0010
0,45
-0,0118
-0,0021
0,0071
GBP
1,293
1,692
2,231
2 -year
US
DE
BE
UK
JP
td
0,53
-0,05
0,01
0,58
0,04
- 1d
-0,02
-0,01
0,00
-0,04
-0,02
EUR
Euribor-1
Euribor-3
Euribor-6
-1d
0,01
0,08
0,18
-2d
0,00
0,00
0,00
Currencies
EUR/JPY
EUR/GBP
EUR/CHF
EUR/SEK
EUR/NOK
144,45
0,7936
1,2016
9,2543
8,4486
STOCKS
DOW
NASDAQ
NIKKEI
DAX
DJ euro-50
17653
ermissioned
17491
9248,51
3057
- 1d
17652,79
#VALUE!
17490,83
9248,51
3056,80
td
-0,028
0,51
0,56
0,68
-1d
-0,001
0,51
0,56
0,68
CRB
268,9421
0,00
GOLD
1155,4
-5,00
USD
Eonia EUR
Libor-1 USD
Libor-3 USD
Libor-6 USD
- 1d Commoditie
0,44
0,0052
- 1d
-0,0006
0,03
0,00
BRENT
0
-80,16
P. 6
Friday, 14 November 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
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Institutional Desk
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London
Frankfurt
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+420 2 6135 3574
+420 2 6135 3570
Prague
+420 2 6135 3535
+421 2 5966 8809
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+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