Sunset

Tuesday, November 15, 2022

Daily Market Overview

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Markets

•          And markets corrected further. Moves since the lower-than-expected US inflation print simply extended with economic data serving as an accelerator. European stocks add a meagre 0.6% but US indices open with very solid 0.9-2.5% gains. The US NY Empire manufacturing index surpassed the bar with ease, coming in at 4.5 vs a -6 consensus. But new orders turned negative again and the outlook for six months ahead turned deeper below zero from -1.8 to -6.1. Financial markets definitely also spotted the PPI easing by more than expected. Headline factory inflation for September was revised lower to 8.4% and slowed to 8% vs 8.3% expected. Core gauges retreated from 7.1% to 6.7% and 5.6% to 5.4%. All of them are still at elevated levels but similar to last Thursday’s CPI, that’s of no importance to markets who just want to see pressure decline, both on prices and on the Fed. US yields at some point shed between 4.2 and more than 9 bps at the front and 4.6-6 bps at the longer end of the curve before taking back some bps as the US session gets going. German yields dip 3.3 to 6 bps across the curve. The 10y yield yesterday didn’t confirm the break beneath its upward sloping trend channel but is attacking that support area again today (2.09%). The European swap counterpart is losing 6.6 bps and is closing in on the June interim high/October correction low 2.72/2.73%. Gilts underperform global peers with yields advancing 1.4 to 3.8 bps. We didn’t see a specific trigger but noted that UK yields bottomed around the time of a £2.25bn 2046 bond auction that tailed and had a lower bid-cover than previously. The UK labour market report was a mixed bag, unable to provide any guidance.

•          The dollar stayed in the defensive overall, unable to benefit from a potential flare-up in the Ukraine war after Russian missiles hit two residential buildings. The trade-weighted greenback (DXY) slipped from 107 to 105.94 at the time of writing. Intermediate support (June 2022 interim high) is being tested as we speak with the actual next reference already located at 105.01 (May 2022 interim high/38.2% retracement of the 2021-2022 rally). EUR/USD got an early morning technical boost as EUR/USD surpassed the 1.035/7 resistance area. The pair went as high as 1.048 before paring gains to just north of 1.04. The dollar extends declines against Asian currencies too. USD/JPY erases yesterday’s uptick to trade back below 139. At 7.04, USD/CNY is trading at the weakest since mid-September. Staying in Anglo-Saxo spheres, sterling is doing well. EUR/GBP dropped from 0.88 to 0.871 while GBP/USD with a little help from the dollar tested the 1.20 big figure.

News Headlines

•          Several Central European countries reported a first estimate of Q3 GDP growth today. However, most often only a global estimate was provided, without much details of on the composition/structure of demand. A positive surprise came from Poland showing growth of 0.9% Q/Q and 3.5Y/Y. As such the country avoided a technical recession after a quarterly decline of -2.1% in Q2. Romania also grew 1.3% Q/Q and 4.0% Q/Q. Central bank governor Mugur Isarescu earlier this week indicated that consumption and EU funds continue to support domestic demand. Growth in Slovakia eased from 1.3% Y/Y tot 1.2% Y/Y, but did beat expectations for a slowdown tot 0.9% Y/Y. Activity growth in Bulgaria printed at a solid 0.6% Q/Q resulting in 4.3M Y/Y growth (compared to 4.2% in Q2). The country today also published slightly softer than expected October CPI data at 0.9% M/M but with the Y/Y figure easing from 18.7% to 3.2%. Hungarian Q3 growth contracted (-0.4% Q/Q) slowing Y/Y growth to 4.0% from 6.5% in Q2.
•          According to Financial Times reporting, Russia and Ukraine are close reach a deal on the exports of grain from Ukraine. The current agreement expires on Saturday if one of the parties makes an objection to the prolongation. The FT says that the extension is being negotiated by the UN on the sidelines of the G20 meeting in Bali. In the compromise, amongst others, Russia is reported to be able to use the same route that was used for the Ukraine’s agricultural exports. It would also be allowed to use a pipeline for ammonia through Ukraine to the port of Odessa.  The agreement is also said to include a technical solution of the payments of Russian exports of grain and fertilizer.
 

Graphs & Table

EUR/USD receives a technical boost after surpassing the 1.035/7 resistance area.

US 2y yield is closing in on next support at October correction low as markets further price out Fed tightening.

Nasdaq: CPI-akin gap higher thanks to lower-than-expected PPIs

Wheat ($/bushel) price eases slightly as FT reports on imminent export deal with Russia.

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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