Sunset

Monday, September 12, 2022

Daily Market Overview

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Markets

• The dollar again took center stage at the start of the new week. After correcting lower last Friday, the greenback continued to trade on the back foot today. It coincided with a better risk mood in general with equities advancing 0.7% in the US and almost 2% in Europe. Some attributed it to the advances made by the Ukrainian army. We also suspect some anticipation on Wednesday’s State of the Union by EC president Von der Leyen during which ad hoc and structural measures to address the energy crisis will be announced (cf. infra). Gas prices in any case fell again, dropping below €200/MWh. Whatever the reason, the greenback is losing ground against most peers. Trade-weighted, it extends losses to the 108(.3) big figure that also serves as support. EUR/USD surged right at the European open. We spot an autonomous euro move next to general dollar weakness. It was built on Buba’s Nagel hawkish comments over the weekend. ECB’s Schnabel later reinforced that message. EUR/USD briefly escaped the downward trend channel in place since the start of the year and hit 1.02 before paring gains. The pair is currently changing hands at 1.011 USD/JPY stabilizes at 142.48 while EUR/JPY is on track for the highest close since 2015 around 144.5. The Swedish krone outperforms today. The currency gains to EUR/SEK 10.63 after yesterday’s parliamentary elections ushered in a shift to the right. Preliminary results aren’t due until Wednesday, but with 95% of the votes counted, the rightwing opposition bloc is set to gain the slimmest edge of 175 seats of the 349 up for grabs. Sterling came under pressure after disappointing industrial production numbers early this morning. EUR/GBP went for a test of the 0.8721 resistance level (June ‘22/April ‘21 high) but was unable to push through, triggering some return action lower. The duo is hovering around opening levels of 0.867. UK markets have a lot of additional data to digest later this week, including the labor market report, inflation data and retail sales. Core bonds are better bid despite the aggressive ECB and Fed talk late last week and over the weekend. It suggests that currently enough central bank hawkishness has been priced in. US yield changes range from -1.1 bps (30y) to -3.9 bps (5y) as markets go into tomorrow’s widely watched CPI release (August). Bunds marginally outperform. Yields drop 2.4-5 bps with the belly of the curve (5y, 10y) receiving the best bids.

News Headlines

• Monthly Czech inflation dynamics slowed from 1.3% M/M in July to 0.4% M/M in August with the Y/Y-comparison slightly decelerating from 17.5% to 17.2%. The headline data hide a stronger underlying, broad-based inflationary trend as a 9.8% M/M decline in transport prices (mainly fuel) blurred the picture. Prices of overall goods in total went up by 0.2% M/M and prices of services by 0.8% M/M. Markets believe that the Czech National Bank will use today’s inflation print to keep its side-lined approach for the time being. Czech swap rates decline by 30 to 40 bps across the curve. Czech money markets almost completely priced out the possibility of a 25 bps rate hike at the September 29 CNB-meeting. CNB governor Michl said after the inflation release that it was below the CNB’s internal forecast (17.7%) which could imply a lower inflation peak than feared. He labelled them as “finally some good news”. CNB vice-governor Mora, part of the hawkish minority in the CNB, still believes that some more tightening is needed. EUR/CZK holds relatively stable around 24.60 with the CNB still intervening to prevent a further, unwarranted, weakening.

• Bloomberg reports about a draft plan by the European Commission following last week’s inconclusive summit by EU energy ministers to help tackle the energy crisis. It includes an exceptional and temporary contribution on companies in oil, gas, coal and refinery industries based on their taxable surplus profits in the fiscal year 2022. It will also propose two targets on power demand reduction: an objective to cut overall consumption and a mandatory goal on lowering demand during selected peak hours. The plan would also cap excessive revenue of companies producing power from sources other than gas through a limit on the price of electricity generated from technologies such as renewables, lignite or nuclear energy.

Graphs & Table

EUR/SEK: Swedish krone outperforms peers after yesterday’s election usher in shift to the right.

EUR/JPY on track for highest close since 2015 as the euro rebounds.

Gas (Dutch TTF future) drops below symbolic €200MWh as markets await EC’s State of the Union on Wednesday.

Not so fast: EUR/USD’s escape from the downward trend channel soon reversed.

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). Read the full disclaimer.

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