Tuesday, 8 March 2022
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•          Same story, different day. Only this time, US risky assets underperformed compared to European peers. Wall Street opened lower and slid further throughout the session. Stocks finished 2.37% (DJI) to 3.62% (Nasdaq) lower. The S&P500 (-2.95%) closed around the 4198.70 support level (23.6% retracement of the complete recovery cycle). Equities in Europe had a dramatic start with the EuroStoxx50 quickly trading almost 5% in the red. Losses eventually were capped at 1.23%. Together with other indices including the German Dax, it still officially closed in bear market territory (>20% losses from cycle high). Many commodities soared once again, sparked by reports of a possible Russian oil embargo by the US (and maybe its allies). Additional concerns arose late in the US session with Russia threatening to cut gas flows to Europe. The most notable price evolutions were (Dutch) gas futures which at some point rose 80% before paring gains to a still-impressive 18% in just one day. Oil extended gains as well. Brent finished at $123.21/b – the highest since 2012. Nickel skyrocketed an astonishing record 66% on a supply risk-driven short squeeze. The moves jolted inflation expectations in the US and Europe. 10y inflation swaps in the former flirted with a record high to finish at 3.08% (+15bps). Europe closed at a 14-year high of 2.72% (+15bps). With real yields still in decline, nominal yield changes amounted to +3 bps (30y) to +7.2 bps (2y) in the US. The German curve saw a similar bear flattening, edging 1.9 bps (30y) to 5.7 bps (5y) higher. 10y yield support in the US and Germany at respectively 1.704% and -0.074% was tested but survived. The dollar on FX markets held sway. Trade-weighted, the greenback surpassed the 99 barrier. EUR/USD came another step closer to the pandemic low in the 1.06-1.08 area (close at 1.0854). The CHF safe haven currency underperformed the likes of USD and JPY amid signals the SNB stands ready to intervene. For the first time in four days, the euro was able to rise against sterling though. EUR/GBP reversed course after losses brought the pair in proximity of the 0.82 big figure to finish at 0.8283.

 •         The first thing that stands out from this morning’s Asian-Pacific session, is nickel’s meteoric rise part two. After searing 66% yesterday to 48000 USD/MT, prices in just a few hours of trading today are at an unprecedented 100k. Stocks trade 1-2% in the red. European markets are set for a dark red open (-3%). US yields give back early gains and the Bund future inches higher. EUR/USD is pretty balanced. Commodity-driven currencies including AUD and NZD take a breather. The ongoing broad-based commodity melt-up stoking growth fears remains the key driver for markets for the time being. It will even dominate the ECB meeting next Thursday. As seen yesterday, rising inflation expectations could protect core bond yields’ downside. We remain cautious on EUR/USD’s short-term upward potential, both fundamentally as technically. The next reference is situated at 1.078.

News Headlines

•          NAB Australia Business confidence (13 from 4) and business conditions (9 from 2) improved substantially in February as the impact from the recent Omicron wave eased. The gains were widespread across several subindices of the survey, including employment (8 from -1) which is an important factor in the assessment of the RBA with respect to the start of policy normalisation. Purchase costs remained elevated, rising at a quarterly cost of 2.7% Q/Q. Rises in labour costs rose at the same speed of 1.7% Q/Q. Australian bond yields today rose substantially, but this was more due to broader inflation fears resulting from higher commodity prices. The 3-y yield  and the 10-y yield both rose 9 bps to 1.66%  and 2.23% respectively. Even so, the Aussie dollar this morning fell prey to profit taking after a good run of late, declining back below the AUD/USD 0.73 handle (0.7288).

•          In a speech to the Australian Financial Review Business Summit, Australian Prime Minister Scott Morrison said the pandemic illustrated that the country should become more self-reliant with respect to key manufacturing. In order to be less vulnerable to supply chain vulnerabilities, the Australian PM earmarked seven areas where Australia should build out manufacturing capacity, including pharmaceutical and protective equipment and semi-conductors.


Geopolitics and the fear for higher energy prices to cause a material economic slowdown have hijacked the ECB normalisation narrative. The 10y yield revisited negative territory. Lingering uncertainty and safe haven bids bring back the -0.07% followed by -0.11% support level on the radar, erasing all 2022 gains.

The US 10y yield tested the symbolic 2% target in the wake of the Fed’s hawkish policy turn and consistently high inflation readings. Fed talk since the geopolitical escalation suggests policy normalization won’t be delayed but safe haven flows caused a return from 2% to the 1.70% previous support.

The euro is in dire straits, suffering more than most other currencies from the conflict at the eastern European borders. Markets have pared back ECB normalization bets. The monetary policy spread as well as dollar safe haven flows caused EUR/USD to stumble to the lowest levels since March 2020. The break below 1.1121/06 paves the way towards that 1.06/08 pandemic support zone.

Testament to euro weakness is EUR/GBP in times of risk-off. The pair tested and temporarily (?) broke below 0.8282 support to hit the lowest levels since 2016. Regarding monetary policy, the BoE hiked its policy rate to 0.5% in February with further tightening in the pipeline.

Calendar & Table

Note: All times and dates are CET. More reports are available at KBCEconomics.be which you may sign up to.

This document has been prepared by the KBC Economics Markets desk and has not been produced by the Research department. The desk consists of Mathias Van der Jeugt, Peter Wuyts and Mathias Janssens, analists at KBC Bank N.V., which is regulated by the Financial Services and Markets Authority (FSMA).
These market recommendations are the result of qualitative analysis, incorporating room for past experiences and personal assessments. The views are based on current market circumstances and can change any moment. The most prominent input comes from publicly available data, financial news, economic and monetary policies and commonly used technical analysis.
The KBC Economics – Markets desk has used reasonable efforts to obtain this information from sources which it believes to be reliable but the contents of this document have been prepared without any substantive analysis being undertaken into these sources.
It has not been assessed as to whether or not these insights would be suitable for any particular investor.
Opinions expressed are our current opinions as of the date appearing on this material only and can be opposite to previous recommendations due to changed market conditions.
The authors of this recommendation do not warrant the accuracy, completeness or value (commercial or otherwise) of any recommendation. Neither are the authors liable to those who receive these recommendations for the content of it or for any loss or damage arising (whether in tort (including negligence), breach of contract, breach of statutory duty or otherwise) from any actions or omissions of the authors in reliance on any recommendation, or for any claim whatsoever in respect of the content of, or information contained in, any recommendation. Any opinions expressed herein reflect the judgement at the time the investment recommendation was prepared and are subject to change without notice.
Given the nature of this advice (linked to currencies and interest rates) , the advice is overall not specific in nature.   As such there is no reference to any corporate finance contract and as such there is no 12 month overview based on the different advices.
This document is only valid during a very  limited period of time, due to rapidly changing market conditions.

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