Thursday, 09 January 2020

P. 1

Rates: US-Iran tensions ease. Q4 rate upleg to resume.

Core bond yields seem to resume their Q4 upleg with the US-Iran hiccup out of the way. Investors might be reluctant to place big directional bets today though given the thin eco calendar and with tomorrow’s payrolls looming. Will the US 10-yr yield try another attack of 1.94% resistance by the end of the week?

Currencies: EUR/USD extends correction, whatever the risk context

EUR/USD extended the downward correction from the start of the year yesterday. For now, an easing of the global tensions didn’t trigger the usual simultaneous rebound in USD/JPY, EUR/JPY and EUR/USD. The dollar remains in the driver’s seat. EUR/USD breaking below the 1.1125/1.1066 support would deteriorate the ST technical picture.

Calendar

• Wall Street heaved a sigh of relief amid easing US-Iran tensions and gained up

to 0.67% (Nasdaq). Asian stock markets are following track, wiping out yesterday’s losses. South Korea outperforms (+3.4%)

• US president Trump tempered investors’ worries yesterday by signaling both the US and Iran seek to avoid a further conflict. The US would instead move ahead with punishing economic sanctions.

• Johnson held his first negotiation with EU Chief Von der Leyen yesterday. The British PM stressed he seeks a Canada-style free trade deal before his year-end deadline while Von der Leyen underlined any deal would come with a trade-off.

• China’s consumer inflation steadied in December to a level of 4.5% (Y/Y) putting a halt to the recent acceleration fuelled by surging pork prices. Factory-gate prices fell at a slower pace (-0.5% Y/Y) , giving the PBOC leeway for easing.

• A BoJ survey showed Japanese households’ economic confidence worsened to a five-year low of -29.8 in Q4/2019. The weak print adds to recent gloomy signs for a fragile recovery amid subdued demand and weaker consumer spending.

• The World Bank cut its global growth outlook for the fourth straight time in a row. It now expects growth picking up 2.5% in 2020 to 2.7% in 2022. The World Bank cites deteriorating prospects in China and the Euro are as dragging factors.

• Today’s economic calendar includes US initial jobless/continuing claims data and EMU unemployment numbers. Investors will be all ears to ECB/BoE/Fed speeches. The US, Spain and France tap the bond market.

Headlines

S&PEurostoxx 50NikkeiOilCRB

Gold2 yr US10 yr US

2yr DE10 yr DEEUR/USDUSD/JPYEUR/GBP

Thursday, 09 January 2020

P. 2

Core bonds resume upleg as US-Iran tensions ease

Core bonds had a volatile ride yesterday. They leapfrogged higher in thin Asian dealings after Iran retaliated against the US. President Trump soon indicated no casualties and eventually accepted Iran’s olive branch to avoid a further military escalation. Core bonds already erased early gains by the European opening bell and lost most ground after US President Trump’s official statement (backing away from action against Iran) during US trading hours. A strong US ADP employment report was published in between, causing first cracks in the US Note future. An ugly $24bn 10-yr note auction (tail & below average demand) caused some final weakness. The US yield curve bear steepened with yields rising by 4.1 bps (2-yr) to 5.8 bps (30-yr). The German yield curve moved in similar fashion with yields increasing 1.6 bps (2-yr) to 5.1 bps (30-yr). 10-yr yield spreads vs Germany narrowed slightly with Greece outperforming (-4 bps). Ireland (€4bn May2035 MS +6 bps) and Portugal (€4bn Oct2030 MS +33 bps) successfully issued new long term bonds through syndication.

News flow is thin this morning. Asian bourses, which underperformed yesterday, gain over 1% in a catch-up move. Core bonds hover sideways near opening levels. Today’s eco calendar only contains US weekly jobless claims and EMU unemployment rate (Nov), neither of which will leave a stamp on trading. The US Treasury ends its mid-month refinancing operation with a $16bn 30-yr Note auction, which could cause some additional intraday underperformance of US Treasuries. Speeches by Fed governors Clarida, Williams, Evans and Bullard are wildcards. We expect them to stick to the consensus view to keep side-lined throughout the year. Overall, we think investors will be reluctant to put up strong directional bets today ahead of tomorrow’s US payrolls report.

Technically: the German 10-yr yield failed to take out the July high (-0.19%), causing rebound action lower. The geopolitical US-Iran conflict temporary questioned the Q4 upleg. Key support stands around -0.40%. The US 10-yr yield on several occasions failed to move north of 1.94%, triggering a return lower in the trading band. First minor support stands at 1.66%/1.69%. We expect upward pressure on core bond yields to return/resume.

Rates

US yield -1d2 1.58 0.045 1.66 0.0510 1.87 0.0630 2.35 0.06

DE yield -1d2 -0.61 0.025 -0.52 0.0310 -0.21 0.0830 0.31 0.05

Af

German 10-yr yield: Q4 uptrend temporary questioned by geopolitical stress.

US 10-yr yield: 1.94% proves to be tough resistance. Fresh test in case of strong payrolls tomorrow?

Thursday, 09 January 2020

P. 3

EUR/USD drifting into the 1.1125/1.1066 support area. Sentiment

remains fragile despite risk rebound.

EUR/GBP: holding near the 0.85 pivot even as UK and EU have fundamentally different views on new trade relation.

EUR/USD struggles not to fall below 1.11 Markets gradually positioned for a de-escalation in the Iran-US conflict yesterday, completely reversing the overnight safe haven positioning. Equities and bonds rebounded. Oil and gold declined. FX price moves were less straightforward. The yen rebounded and the Swiss franc bottomed. Still, the (trade weighted) USD extended gains, with the euro underperforming. Eco data might have been a part of the explanation. EMU data (German orders, EC confidence) were unconvincing while the US ADP labour report was strong. Still, the EUR/USD decline was a continuation of the 2020 price trend. After a protracted slide, EUR/USD closed at 1.1105 (from 1.1134). USD/JPY closed at 109.12 (from 108.22). Overnight, Asian markets are joining the risk rebound. USD/JPY extends gains north of 109. Regional currencies including the won and the yuan (re)gain ground. The yuan (USD/CNY 6.93 area) gains occurred despite softer than expected Chinese price data (CPI/PPI). The move can be seen as a constructive attitude of China in the run-up to the signing of the US-China trade pact next week. EUR/USD stabilizes in the low 1.11 area but shows no signs of an imminent rebound yet. Today, the eco calendar is thin on both sides of the Atlantic. EMU unemployment and US jobless claims won’t change the broader picture. Several Fed members speaking probably will confirm the Fed wait-and-see stance. Global sentiment will again set the tone for FX trading. After constructive price action end last year, the euro underperformed at the start of this year. The underperformance occurred both in a risk-on and a risk-off context. So, the day-to-day momentum is clearly euro negative. Short-term, the dollar apparently profits more from higher core yields rather than the euro. In the past, a constructive risk context mostly supported EUR/USD (via EUR/JPY) but for now this doesn’t work. EUR/USD has dropped within the 1.1125/1.1066 MT support area. A drop below this band would serious deteriorate the ST technical picture. It’s not our preferred scenario, but risks are building. Sterling trading was mostly technical in nature yesterday, with EUR/GBP feeling some fall-out from the EUR/USD slide. A meeting between UK PM Johnson and EC’s von der Leyen, confirmed that both parties have a highly divergent view on the trade negotiations. For now, it had no additional negative impact on sterling. Today, the calendar is thin. We assume more technical EUR/GBP trading near current levels.

Currencies

R2 1.1265 -1dR1 1.1199EUR/USD 1.1105 -0.0048S1 1.1000S2 1.0879

R2 0.8798 -1dR1 0.8676EUR/GBP 0.8480 -0.0018S1 0.8275S2 0.8117

Thursday, 09 January 2020

P. 4

Thursday, 9 January Consensus Previous US 14:30 Initial Jobless Claims 220k 222k 14:30 Continuing Claims 1720k 1728k UK 01:01 BRC Sales Like-For-Like YoY (Dec) 1.7%A -4.90% EMU 11:00 Unemployment Rate (Nov) 7.50% 7.50% Germany 08:00 Exports/Imports SA MoM (Nov) -0.90%/0.10% 1.5%R/0.5%R 08:00 Industrial Production SA MoM/WDA YoY (Nov) 0.80%/-3.70% -1.70%/-5.30% Italy 10:00 Unemployment Rate (Nov P) 9.70% 9.70% Belgium 11:00 Unemployment Rate (Nov) -- 5.60% China 02:30 PPI YoY (Dec) -0.50%A -1.40% 02:30 CPI YoY (Dec) 4.50%A 4.50% Events 10:30 BoE Governor Carney Speaks in London 10:45 Spain to Sell Bonds 10:50 France to Sell Bonds 14:00 Fed's Clarida Discusses Economy, Monetary Policy in New York 15:30 Fed’s Kashkari Speaks at Regional Economic Conference 17:30 Fed's Williams Speaks at BoE in London 18:00 ECB Governing Council member Villeroy Speaks in Paris 19:00 ECB Executive Board member Schnabel Speaks in Mainz, Germany 18:45 Fed’s Barkin Spekas in Richmond 19:00 US to Sell USD16 Bln 30-Year Notes 19:20 Fed's Evans Speaks on Economic Outlook 20:00 Fed's Bullard Speaks to Wisconsin Bankers 20:10 ECB Governing Council Member weidmann Speaks in Cologne

Calendar

Thursday, 09 January 2020

P. 5

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 1.87 0.06 US 1.58 0.04 DOW 28745.09 161.41DE -0.21 0.08 DE -0.61 0.02 NASDAQ 9129.242 60.66BE 0.03 0.03 BE -0.59 0.01 NIKKEI 23739.87 535.11UK 0.82 0.02 UK 0.63 0.03 DAX 13320.18 93.35

JP 0.01 0.01 JP -0.13 -0.01 DJ euro-50 3772.56 13.31

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y -0.27 1.63 0.84 Eonia -0.4550 0.00005y -0.17 1.66 0.89 Euribor-1 -0.4480 0.0040 Libor-1 1.6990 0.000010y 0.15 1.82 0.99 Euribor-3 -0.3900 -0.0030 Libor-3 1.8780 0.0000

Euribor-6 -0.3320 -0.0090 Libor-6 1.8805 0.0000

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

EUR/USD 1.1105 -0.0048 EUR/JPY 121.18 0.26 CRB 183.38 -3.55USD/JPY 109.12 0.68 EUR/GBP 0.8480 -0.0018 Gold 1560.20 -14.10GBP/USD 1.3097 -0.0029 EUR/CHF 1.0815 -0.0006 Brent 65.44 -2.83AUD/USD 0.6866 -0.0004 EUR/SEK 10.507 -0.0386USD/CAD 1.3039 0.0035 EUR/NOK 9.846 -0.0259

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Brussels Research (KBC) Global Sales Force Mathias Van der Jeugt +32 2 417 51 94 Corporate Desk(Brussels) +32 2 417 45 82 Peter Wuyts +32 2 417 32 35 Institutional Desk(Brussels) +32 2 417 46 25 Mathias Janssens +32 2 417 51 95 CBC Desk (Brussels) +32 2 547 19 19 Dieter Lapeire +32 2 417 25 47 France +32 2 417 32 65 Dublin Research London +44 207 256 4848 Austin Hughes +353 1 664 6889 Singapore +65 533 34 10 Shawn Britton +353 1 664 6892 Prague Research (CSOB) Prague +420 2 6135 3535 Jan Cermak +420 2 6135 3578

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