Friday, 16 January 2015
Rates: Once more, bonds are favoured
The SNB decision to abandon its EUR/CHF floor send shock waves through the markets. Core bonds profited, but peripheral
bonds were barely affected. The key performer remains US Treasuries that cranked up sharp gains already safeguarded
earlier this week. Risk off (equities, oil) in the US session was an additional positive. Calmer trading conditions today?
Currencies: EUR/USD hammered after SNB decision
The removal of the EUR/CHF 1.20 floor by the SNB also had big consequences for EUR/USD. The pair touched its lowest level
in more than 11 years. Risk-off sentiment in the US supported the yen, but the gains of the Japanese currency were limited
after all. EUR/GBP also touched a multi-year low. Some consolidation might be expected after the recent sharp moves.
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 extended their losing streak yesterday, falling for a fifth straight
session after disappointing earnings and continued growth fears. This morning,
also Asian shares trade lower with the exception of Chinese stocks which profit
from new targeted stimulus measures.
•
China announced this morning fresh stimulus measures to support its slowing
economy after data showed yesterday a drop in bank lending, while growth in
foreign investments dropped to a 2-year low. The central bank said it would lend
50 billion yuan to banks at discounted rates to allow them to relend it at farmers
and small businesses.
•
Ahead of next week’s new IMF forecasts, Managing Director Lagarde gave a
sober outlook for the global economy saying cheaper oil prices and a resurgent
US economy are unlikely to be enough to pull the global economy out of a
growth pattern that is too low, too brittle and too lopsided.
•
The Bank of Japan may next week decide to expand two loan schemes aimed
at encouraging commercial banks to lend more and extend them beyond the
current March expiry date, Reuters reports quoting sources familiar with the
central bank, but details remain still unclear.
•
Two unidentified Greek banks are said to have submitted requests to the Bank
of Greece for more than €5 billion in cash via the Emergency Liquidity
Assistance, the Greek central banker reported.
•
Intel revenues increased 6% from a year earlier helped by surging sales of
server chips, but demand for personal computers appeared to lose steam,
suggesting that projected sales might fall short of expectations. Schlumberger’s
profit fell sharply as the oil glut and tepid demand for fuel weighed on demand
for its services.
•
Today, both in the US and euro zone, CPI inflation data will be released. In the
US, also production figures and Michigan consumer confidence is on the agenda.
Goldman Sachs will announce Q4 earnings
P. 1
Friday, 16 January 2015
Rates
SNB abandons EUR/CHF floor,
triggering volatility and
repositioning across markets.
US 30-yr yield drops to new all- time
lows.
Bund sets once more new high
2
5
10
30
US yield
0,4282
1,1935
1,7394
2,382
-1d
-0,0964
-0,1569
-0,1433
-0,1067
2
5
10
30
DE yield
-0,1470
-0,0490
0,4610
1,1150
-1d
-0,0290
-0,0430
0,0130
-0,0600
Risks for upward revision EMU CPI
Spectacular drop headline US CPI
expected, but core CPI may go higher
Downside risk US production and
Michigan consumer confidence
Swiss National Bank throws in the towel
Yesterday’s shock move from the Swiss National Bank created additional
volatility and boosted risk-off sentiment on most markets. The SNB abandoned
its floor policy against the euro as the global liquidity glut, a result of the policy
choices of the main central banks, overwhelmed the tiny Alp state. The central
bank had to buy enormous amounts of especially euros that encumbered its
balance sheets. Only on the euro part of its reserves, losses probably mount to
at least €50B. Global core bonds profited, but gains were capped in Europe as
equities managed an impressive comeback. However, in the US, equities got
into the problems (earnings) giving US Treasuries an additional firm push in
the back. They ultimately sharply outperformed Bunds. In yields terms, US
yields fell 9 to 15.8 bps, with the 30-yr now firmly through the all-time lows
(support). In Germany, yields fell by 2.5 and 2.8 bps at the 2- 5 yr sector, while
they were little changed at the long end (benchmark change in 10-yr). US eco
data were mixed. Empire manufacturing and PPI were better, while weekly
claims and the Philly Fed indicator disappointed. They didn’t impact markets.
Today’s focus will be on inflation with December CPI inflation in both the US
and EMU (final). In the US, also production and Michigan confidence are on the
agenda. ECB’s Costa and Fed’s Kocherlakota, Williams and Bullard are scheduled
to speak. US earnings are few with only Goldman Sachs results on the agenda.
In EMU, the December final CPI reading is expected to be confirmed at -0.2%
Y/Y (officially 0.15% Y/Y), down from 0.3% Y/Y in November. We believe that the
risks, if there are any, are skewed to the upside. More interesting is of course
the core reading, which excludes the direct impact of the lower oil price. Core
CPI is forecast to be confirmed at 0.8% Y/Y, up from 0.7% Y/Y in November. In
the US, CPI inflation is forecast to have almost halved in December. The
consensus is looking for a slowdown in inflation from 1.3% Y/Y to 0.7% Y/Y,
mainly due to the lower oil price. On a monthly basis, CPI is expected to have
dropped by 0.4% M/M. Core inflation is forecast to have stabilized at 1.7% Y/Y,
but we see risks for an upward surprise for the core. Also in the US, industrial
production is expected to have dropped by 0.1% M/M in December, following a
strong 1.3% M/M surge in November. We believe that the risks are for a
downward surprise, partly due to weakness in utilities and sluggishness in
manufacturing. Finally, Michigan consumer confidence is expected to extend its
upward trend in January. The preliminary reading is forecast to increase from
93.6 to 94.1, but we see risks for a downward surprise.
Bund future (orange) and EUR/CHF (black) (intraday): Bunds profit
from SNB decision
US 30-year yield now firmly below previous all-time low. .
P. 2
Friday, 16 January 2015
R2
R1
BUND
S1
S2
158
157,83
157,69
156,1
155
-1d
Overnight, Asian equities trade lower partly copying yesterday evening’s
WS weakness. Intel earnings were good, but the outlook disappointed.
Chinese stocks outperform despite more worrying signals in the country’s
property sector. The Brent oil price trades stable near the lows ($48/barrel)
after yesterday’s failed comeback attempt. The US Note future trades
neutral around yesterday’s highs.
0,6200
Today, the EMU calendar is thin with only final CPI’s. Whatever the
outcome, we don’t think that there will be a significant impact ahead of
next week’s ECB meeting. In the US, we get CPI, industrial production and
Michigan confidence. We see risks for core inflation on the upside of
expectations. Given that at this stage this will be the most important
indicator, it could trigger some profit taking ahead of the long weekend in
the US after this week’s juicy gains. Risks for industrial production and
Michigan confidence are on the downside. Apart from the data, Fed
Kocherlakota (ultra-dove), Bullard (loose cannon) and Williams (centrist)
are scheduled to speak. Their comments are wildcards for trading.
Commodity prices and equity sentiment will also be closely monitored
though there was a disconnection between European stocks and bonds
yesterday.
Overall, we expect more sideways trading around the highs ahead of
upcoming event risks (ECB (Jan 22), Greek election (Jan 25) and FOMC (Jan
28)) with potential profit taking today. If the ECB effectively walks the QE
talk, that might change (more downward potential). At previous QEprogrammes by BoJ, BoE & Fed, a significant buy-the-rumour, sell-the-fact
occurred after the effective announcement, as markets were hopeful it
would help. Is this the case with ECB QE?
German Bund future: sideways trading around/test of the highs
ahead of multiple event risks?
US Note future: Profit taking on stronger core US CPI?
.
P. 3
Friday, 16 January 2015
Currencies
In the wake of the SNB action...
SNB action was the key factor for
currency trading yesterday.
EUR/USD touched multi-year low
R2
R1
EUR/USD
S1
S2
1,1976
1,1871
1,1643
1,1568
1,1377
-1d
-0,0130
US data are interesting, but the
focus will be on the fall-out from
the SNB decision and to a lesser
extent on oil
On Thursday, the focus of global markets changed again dramatically. The
surprise decision of the Swiss National bank to remove the EUR/CHF 1.20 cap
for the Franc was de dominant factor for trading. The CHF rallied sharply. The
euro was ‘hurt’ in lockstep and set a multi-year low. The impact on the USD
overall was temporary and limited. The yen traded (slightly) stronger.
Overnight, the fall-out from the SNB decision is also reaching the Asian markets.
Asian equities show a mixed picture. Japanese stocks underperform as the yen
stays strong. USD/JPY filled bids below 116. Markets apparently fear that part of
the potential safe have flows into the Swiss Franc might look for shelter in the
yen in times of financial stress. Even so, the rise of the yen stayed moderate.
Japanese equities and USD/JPY also try to regain some ground as the Asian
trading session develops. EUR/USD is slightly higher, off yesterday’s lows, and
trades in the 1.1635 area at the moment of writing.
Today, the final EMU CPI will be published. A negative revision is unlikely. In the
US, CPI will also be published together with December US production data and
Michigan consumer confidence. We see slight upward risks for the core CPI but
downside risks for production and consumer confidence. In this scenario, we
don’t expect the data to be a lasting factor for USD trading. A higher core CPI
might be slightly USD supportive. However, currency market will still be guided
by the overall sentiment on risk, by the gyrations in oil/commodity prices and
by the fall-out from yesterday’s SNB decision.
Yesterday, there was a big divergence between the impressive rebound on the
European equity markets (ex Switzerland) and the decline in the US. A risk-on
sentiment is in theory positive for the dollar but given the divergence between
markets (USD versus Europe) it is difficult to draw any conclusions for the dollar.
Oil stays off the recent lows but the picture remains fragile. Even so, a
bottoming of the oil price might be slightly USD positive. Regarding the SNB
decision, markets apparently concluded that a big potential buyer of ECB QE
liquidity (the SNB) has disappeared. This triggered a sell-off in EUR/CHF, but also
in the euro overall. This euro decline supported European equities. It is difficult
to assess how far this repositioning has gone, but we assume that it is not yet
completely worked out. If so, the topside in EUR/USD might still remain tough.
EUR/USD hammered after SNB decision
USD/JPY : nearing key support
P. 4
Friday, 16 January 2015
One last important factor. Due to rising volatility/Risk-off sentiment, US bond
yields decline much faster than European ones as the latter have reached
‘physical barriers’ (a lot of ST EMU bond yields are close to or even in negative
territory). For now, market don’t look much too interest rate differentials,
especially not for EUR/USD. However, the issue deserves worth monitoring.
USD/JPY and EUR/JPY are reaching key
support levels.
R2
R1
EUR/GBP
S1
S2
0,7875
0,7741
0,7654
0,7527
0,7414
-1d
-0,0082
Sterling rebound continues. EUR/GBP
sets multi-year low
GBP shows more signs of bottoming out.
Strategy. We have a euro negative bias, even as the single currency has already
recorded substantial losses of late and is in oversold territory. The 1.1877 level
(2010 low) is broken and also the key 1.1640 level was cleared after the SNB
decision, though the test is ongoing. We don’t row against the tide, but some
consolidation or even a limited correction after the recent euro sell-off is
possible. We don’t change our long term EUR/USD negative stance, but
investors with a short-term horizon might consider partial stop-profit
protection on EUR/USD shorts. Of course, uncertainty on Greece and on QE
remains a negative for the euro, but part of this might already be discounted
after the recent decline. For USD/JPY, we were cautious of late as a fragile risk
sentiment and low core bond yields weighed on USD/JPY and EUR/JPY. The jury
is still out, but we look out for more signs of bottoming out. USD/JPY (115.57)
and EUR/JPY (134.14) are nearing key support. Will those supports by able to
stop the rout? Both pairs reaching key support levels can be a good reason to
consider at least partial protection on USD/JPY or EUR/JPY shorts even as the
volatile environment might continue to support the yen over time.
EUR/GBP sets multi-year low after SNB decision.
Yesterday, most major currencies were driven by the unexpected removal of the
EUR/CHF 1.20 cap on the Swiss Franc by the SNB. EUR/USD spiked sharply lower.
The impact on cable was much more limited and basically temporary.
Throughout this process cable outperformed EUR/GBP substantially. EUR/GBP
filled bids in the 0.7635 area, the lowest level in 7 years. Cable was much less
affected but a late-session decline caused the pair to close at 1.5183. Even so,
this scenario confirms the recent bottoming out process of sterling.
There are no important eco data in the UK today. Sterling trading will be at the
mercy of global developments. Sterling finally found a bottom and is becoming
better supported, especially against the euro. EUR/GBP yesterday set a multiyear low as the 0.7755/41 support was broken. Some consolidation after
yesterday’s big EUR/GBP decline is possible, but we keep a cautious EUR/GBP
negative bias.
EUR/GBP: hammer by SNB decision
Cable looking for a bottom
P. 5
Friday, 16 January 2015
Calendar
Friday, 16 January
US
14:30
14:30
15:15
15:15
16:00
22:00
22:00
EMU
08:00
11:00
11:00
Germany
08:00
France
08:45
Italy
11:00
Events
US
DE
BE
UK
JP
IRS
3y
5y
10y
Currencies
EUR/USD
USD/JPY
GBP/USD
AUD/USD
USD/CAD
Previous
CPI MoM YoY (Dec)
CPI Ex Food and Energy MoM (Dec)
Industrial Production MoM (Dec)
Capacity Utilization (Dec)
U. of Mich. Consumer Confidence (Jan P)
Total Net TIC Flows (Nov)
Net Long-term TIC Flows (Nov)
-0.4% / 0.7%
0.1% / 1.7%
-0.1%
79.9%
94.1
---
-0.3% / 1.3%
0.1% / 1.7%
1.3%
80.1%
93.6
$178.4B
-$1.4B
EU27 New Car Registrations (Dec)
CPI MoM YoY (Dec)
CPI Core YoY (Dec F)
A 4.7%
-0.1% / -0.2%
0.8%
1.4%
-0.2% / -0.2%
0.8%
CPI EU Harmonized MoM YoY (Dec F)
A 0.1% / 0.1%
0.1% / 0.1%
Budget Balance YTD (Nov)
--
-84.7B
Current Account Balance (Nov)
--
5461M
Goldman Sachs (13:30) Announces Q4 Earnings
ECB's Costa Speaks at Conference on Adjustment of Economies
Fed's Kocherlakota Speaks on Economy and Monetary Policy
Fed's Williams Speaks in San Francisco
Fed's Bullard Delivers Presentation on U.S. Economy and Moneta
10:00
13:50
17:00
19:10
10-year
Consensus
td
1,74
0,46
0,63
1,50
0,24
- 1d
-0,15
0,02
0,00
-0,01
-0,01
EUR
0,160
0,290
0,700
USD (3M)
0,943
1,333
1,842
1,16425
116,545
1,5195
0,8228
1,1963
- 1d
-0,0130
-1,16
-0,0021
0,0005
0,0001
GBP
0,967
1,226
1,572
2 -year
US
DE
BE
UK
JP
td
0,43
-0,15
-0,10
0,37
-0,02
- 1d
-0,09
-0,03
-0,03
-0,06
0,01
EUR
Euribor-1
Euribor-3
Euribor-6
-1d
0,01
0,07
0,16
-2d
0,00
0,00
0,00
Currencies
EUR/JPY
EUR/GBP
EUR/CHF
EUR/SEK
EUR/NOK
135,66
0,7656
1,0192
9,4618
8,8754
STOCKS
DOW
17321
NASDAQ
for Exch - NQI
NIKKEI
16864
DAX
10032,61
DJ euro-50
3157
USD
Eonia EUR
Libor-1 USD
Libor-3 USD
Libor-6 USD
- 1d Commoditie
-2,88
-0,0077
- 1d
-0,1816
-0,05
-0,10
- 1d
17320,71
#VALUE!
16864,16
10032,61
3157,36
td
-0,067
0,50
0,56
0,68
-1d
0
0,50
0,56
0,68
CRB
220,425
-2,85
GOLD
1258,5
30,26
BRENT
48,42
0,45
P. 6
Friday, 16 January 2015
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
France
London
Singapore
+32 2 417 45 82
+32 2 417 46 25
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+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