Tuesday, 27 March 2018

P. 1

Rates: No strong trading themes

Core bonds held rather strong despite yesterday’s significant improvement in risk sentiment. US Treasuries still underperformed German Bunds ahead this week’s first auction, which eventually went well. We expect technical-driven trading today, but the topside should be capped if risk sentiment doesn’t deteriorate again.

Currencies: USD hardly profits from improved risk sentiment

Trade tensions eased yesterday. Last week’s negative risk sentiment was a negative rather than a positive for the dollar. However, for now, there is no symmetrical positive USD reaction as risk sentiment improves. USD/JPY gains modestly. At the same time; EUR/USD is drifting higher in the 1.2155/1.2555 consolidation pattern.

Calendar

• US stocks posted a very strong daily gain (+3%), rebounding after last week’s

trade war-related weakness. Asian stock markets gain up to 1% with Japan outperforming (+2.25%).

• Top Trump administration officials are asking China to cut tariffs on imported cars, allow foreign majority ownership of financial services firms and buy more US-made semiconductors in negotiations to avoid plans to slap tariffs on a host of Chinese goods and a potential trade war.

• Chinese industrial profits picked up pace in the first two months of the year from December but still lagged 2017 growth, backing expectations that the economy is set to cool as Beijing clamps down on debt risks.

• Washington-based Fed governor Quarles said that the economy is performing well and unemployment is low. Cleveland Fed Mester said that the US central bank will be striking the right balance if it continues a gradual pace of rate hikes.

• EU and Turkish leaders held a tense summit, as friction overt the Turkish president’s human-rights record and concern over new military intervention in Syria eroded remaining hopes of the country’s accession to the EU.

• A reshuffled Slovak government led by Peter Pellegrini won a parliamentary confidence vote, a month after the murder of an investigative journalist sparked mass protests and forced long-serving leader Robert Fico to resign.

• Today’s eco calendar contains EMU M3 money data, EC economic confidence, US housing prices and consumer confidence. The US continues its refinancing operation while Fed Bostic and ECB Nowotny speak.

Headlines

S&PEurostoxx 50NikkeiOilCRB

Gold2 yr US10 yr US

2yr DE10 yr DEEUR/USDUSD/JPYEUR/GBP

Tuesday, 27 March 2018

P. 2

No strong trading themes

Core bonds traded with a downward bias, but within rather narrow ranges, withstanding the impressive rebound of stock markets after last week’s trade-related losses. The turnaround in risk sentiment came after weekend comments from the US’ and Chinese side signalling common sense might eventually prevail. US Treasuries nevertheless underperformed German Bunds even if the US $30bn 2-yr Note auction went very well. Brent crude hovered around the $70/barrel mark.

At the end of the day, US yields rose by 1.7 bps (2-yr) to 4.1 bps (5-yr) with the belly of the curve underperforming the wings. Changes on the German yield curve were limited between +0.6 bps (2-yr) and -0.3 bps (10-yr). 10-yr yield spread changes versus Germany ended close to unchanged with Greece (+5 bps) and Italy (+4 bps) underperforming. Italian BTP’s suffer from the prospect of a new populist government by the 5 star movement and Lega Nord and from the upcoming supply operation.

Asian stock markets follow WS higher, but to a lesser extent with main indices around 0.5% to 1% in the green. Japan outperforms (+2.5%). The US Note future trades sideways. We expect a neutral opening for the Bund.

Today’s eco calendar contains mostly second tier eco data, both in EMU and US. We are nevertheless eager to find out whether or not markets become more sensitive to US eco data after Fed Powell suggested more data dependence in the future. If March Richmond Fed manufacturing and consumer confidence are already impacted by US trade rhetoric, it would suggest that the US Note future could for once outperform the German Bund despite the continuation of the US Treasury’s refinancing operation. Risk sentiment remains a wildcard for trading. A further rebound should cap any gains whatsoever. So overall, we expect trading to occur within narrow, existing ranges today. Later this week, attention turns to EMU national CPI data and the US PCE deflator.

After the Fed meeting, we advocated corrective action in the US 10-yr yield towards 2.8%. The test occurred and a break lower was avoided, strengthening this support level. Return action could be used to set-up new short positions in the US Note future. The German 10-yr yield fell below 0.62% support after the ECB meeting, suggesting a technical correction towards 0.46%-0.48% support (gap open/62% retracement).

Rates

US yield -1d2 2,27 0,025 2,64 0,0410 2,85 0,0430 3,08 0,03

DE yield -1d2 -0,60 0,015 -0,06 0,0010 0,52 0,0030 1,19 0,00

US 10-yr yield: new test of 2.8% support. Break didn’t occur, strengthening the support level

US S&P 500 (intraday, 6 days): risk rebound following last week’s sell-off

Af

Tuesday, 27 March 2018

P. 3

DXY (USD trade-weighted): USD struggles to prevent further losses even

as trade tensions ease

EUR/USD: drifting higher in the 1.2155/1.2555 trading range

Dollar hardly profits from easing trade tensions

Global risk sentiment improved yesterday on signs that the US tried to solve issues with its trading partners (including China) via negotiations. (US) Equities rebounded after Friday’s sell-off. Trade tensions were a negative rather than a positive for the dollar last week, but the price pattern wasn’t really symmetrical as tensions eased. USD/JPY rebounded north of 105 and closed the day at 105.41. However; the dollar lost further ground against most other majors. EUR/USD trended higher throughout the day and close at 1.2444.

Asian equities join the risk rebound from WS overnight. There is little concrete news. Markets are just growing more confident as the ‘provocation/retaliation phase’ in the trade dispute apparently moved to negotiations on specific topics. FX/USD trading is in line with yesterday. USD/JPY profits modestly from the improved risk sentiment. USD/JPY filled offers in the 105.75 area. At the same time, the euro is holding strong against the dollar (EUR/USD 1.2450 currently).

The eco calendar is moderately interesting today with EMU money supply data and the EC confidence data. In the US, house price data, the Richmond Fed manufacturing index and consumer confidence will be published. EC confidence data are expected to ease in line with recent other survey evidence. A modest setback won’t change expectations on ECB policy. US consumer confidence is expected to hold near the cycle high. We keep an eye at the price measures of the report. CB speakers (Nowotny/Bostic) remain a wildcard. Yesterday’s price action showed that a positive risk sentiment and cautiously higher yields are not enough to trigger a meaningful USD rally. The dollar needs outright positive news, especially on prices. That news isn’t available at this stage. The dollar remains vulnerable in this context. We keep a close eye on the ST dynamics in EUR/JPY to assess the fate of EUR/USD. For now a test of the topside of the 1.2155/1.2555 range looks more likely than a downside test. We see no need for a (topside) break.

Sterling trading mostly followed the overall trades in the euro and the dollar yesterday. There was little UK specific news. There are no UK eco data today. We expect more order-driven, technical price action in the lower part of the EUR/GBP 0.8652-68/0.8950 trading range.

Currencies

R2 1,2598 -1dR1 1,2555EUR/USD 1,2444 0,0091S1 1,2165S2 1,2055

R2 0,9307 -1dR1 0,9033EUR/GBP 0,8746 0,0004S1 0,8690S2 0,8657

Tuesday, 27 March 2018

P. 4

Tuesday, 27 March Consensus Previous US 15:00 S&P CoreLogic CS 20-City MoM SA / YoY NSA (Jan) 0.50%/6.15% 0.64%/6.3% 16:00 Richmond Fed Manufact. Index (Mar) 22 28 16:00 Conf. Board Consumer Confidence (Mar) 131.0 130.8 16:00 Conf. Board Present Situation (Mar) -- 162.4 16:00 Conf. Board Expectations (Mar) -- 109.7 Japan 01:50 PPI Services YoY (Feb) A: 0.6% 0.7% EMU 10:00 M3 Money Supply YoY (Feb) 4.6% 4.6% 11:00 Economic Confidence (Mar) 113.3 114.1 11:00 Business Climate Indicator (Mar) 1.36 1.48 11:00 Industrial Confidence (Mar) 6.9 8.0 11:00 Services Confidence (Mar) 16.5 17.5 11:00 Consumer Confidence (Mar F) 0.1 0.1 Germany 08:00 Import Price Index MoM / YoY (Feb) -0.3%/-0.3% 0.5%/0.7% Italy 10:00 Manufacturing Confidence (Mar) 109.9 110.6 10:00 Consumer Confidence Index (Mar) 115.0 115.6 10:00 Economic Sentiment (Mar) -- 108.7 Spain 09:00 CPI EU Harmonised MoM / YoY (Mar P) 1.6%/1.5% 0.1%/1.2% Events 01:10 Fed’s Quarles to Speak in Atlanta 09:00 ECB Vasiliauskas Speaks in Vilnius 10:00 Bank of Finland Press Briefing on Monetary Policy, Economy 11:00 ECB’s Nowotny Presents Austrian Central Bank’s Annual Report 17:00 Fed’s Bostic Speaks at Economic Conference in Atlanta 19:00 US to Sell $35bn 5-yr Notes

Calendar

Tuesday, 27 March 2018

P. 5

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 2,85 0,04 US 2,27 0,02 DOW 24202,6 669,40DE 0,52 0,00 DE -0,60 0,01 NASDAQ 7220,543 227,88BE 0,80 -0,01 BE -0,53 0,00 NIKKEI 21317,32 551,22UK 1,44 -0,01 UK 0,89 0,00 DAX 11787,26 -99,05

JP 0,04 0,02 JP -0,15 0,00 DJ euro-50 3278,72 -19,35

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y 0,03 2,71 1,26 Eonia -0,3670 -0,00105y 0,41 2,79 1,41 Euribor-1 -0,3700 0,0000 Libor-1 1,8750 0,000010y 1,00 2,89 1,56 Euribor-3 -0,3290 0,0000 Libor-3 2,2916 0,0000

Euribor-6 -0,2710 -0,0010 Libor-6 2,4497 0,0000

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

EUR/USD 1,2444 0,0091 EUR/JPY 131,17 1,77 CRB 195,77 -0,49USD/JPY 105,41 0,67 EUR/GBP 0,8746 0,0004 Gold 1360,90 5,20GBP/USD 1,4229 0,0097 EUR/CHF 1,1769 0,0068 Brent 70,12 -0,33AUD/USD 0,7748 0,0049 EUR/SEK 10,194 0,0054USD/CAD 1,2843 -0,0052 EUR/NOK 9,5597 -0,0245

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ALL OUR REPORTS ARE AVAILABLE VIA OUR KBC RESEARCH APP (iPhone, iPad, Android) This non exhaustive information is based on short term forecasts for expected developments

This non-exhaustive information is based on short-term forecasts for expected developments 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.

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