Friday, February 18, 2022

Daily Market Overview

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• ECB chief economist Lane’s speech yesterday not having a meaningful impact on markets didn’t make it less symbolic. The last staunch defender of the central bank’s extremely easy monetary policy threw in the towel, basically saying normalization (ending QE, negative rates) is on the horizon. Lane’s speech was one of the several this week, o.a. by Schnabel and Villeroy, which all had the same tone. It was followed by more central bank talk by ECB’s Kazimir (Slovakia) and Vasle. The former argues to end QE already in August as to retain some flexibility regarding interest rates. Slovenian council member Vasle said monetary policy should adjust quicker to try and shift the inflation trend in 2022H2. Both carry less weight compared to the others this week but it’s striking nonetheless how quickly consensus is forming. For the moment though, German – core in general – bond markets are more occupied with the geopolitical situation and that may remain the case for some time around. Risk sentiment was a story of ebb and flow all week, today included. This morning things looked somewhat brighter after the US’s and Russia’s foreign ministers agreed to hold talks next week. It rekindled hopes for a diplomatic way out of the conflict. But sentiment turned again after (US) reports of Russia having gathered some 190k of military personnel along the Ukrainian borders. Donbas separatists later said there’s an evacuation going on in the disputed region due to the conflict escalation. Equities dived into the red with losses up to 1% in Europe. US stocks open mixed/flat. Core bonds swapped early losses for gains with the Bund outperforming US Treasuries. The German curve bull steepens with changes ranging from -4.4 bps (2y) over -3.1 bps (10y) to -2.4 bps (30y). Germany’s 2y is nearing the levels before the ECB’s pivot on February 3. European swap yields lose <2 bps at the short end. US yields trade flat at the front (2y) and  lose 2.4-2.6 bps (10y-30y) further down the curve.

 • The US dollar holds a slight advantage over the euro with the EUR/USD pair drifting towards 1.134 from an 1.1361 open. Trade-weighted DXY is near intraday highs of 95.93. The usual beneficiaries in case of deteriorating sentiment are letting down a bit. USD/JPY holds above 115 and the Swiss franc barely gains against the euro (EUR/CHF 1.044, down from 1.045). Britain’s economic update came to a conclusion with strong retail sales this morning rebounding from an Omicron-hit December. Together with a solid labour market report and above-consensus CPI figures, all is set for the Bank of England to continue its normalization cycle. EUR/GBP declines for a third day straight today but mainly on euro weakness and inspired by EUR/USD moves rather than sterling strength. The couple is filling bids in the 0.834 area.
News Headlines

• Swedish inflation moderated less than forecast in January. Headline inflation (CPIF) fell by 0.5% M/M to 3.9% Y/Y (from 4.1% Y/Y). The main impact to the monthly figure came from lower electricity prices. Underlying inflation even increased by 0.1% M/M (vs -0.5% M/M forecast) to accelerate from 1.7% Y/Y to 2.5% Y/Y and matching the highest level since March 2002. Prices in January increased for fuel (especially diesel), motor cars, health services and food and non-alcoholic beverages. There were also increased prices for furnishings and household equipment, housing costs and fees for rented and housing co-operative dwellings. The Swedish krona spiked higher after the release but failed to really gather momentum. EUR/SEK currently changes hands around 10.59. The Swedish swap curve bear flattens with yields rising by 2.1 bps (30-yr) to 4.5 bps (2-yr).

• Canadian retail sales declined by 1.8% M/M in December. Core sales recorded an even steeper 2.5% M/M decline. Lower sales at clothing and clothing accessories stores (-9.5% M/M) and furniture and home furnishings stores (-11.3% M/M) led the decline, which coincided with concerns over the spread of the COVID-19 Omicron variant in December. Retail sales were up 1.7% in the fourth quarter of 2021, marking its second consecutive quarterly increase. The loonie didn’t respond to the data with USD/CAD changing hands just above 1.27.

Graphs & Table

German 2y yield erases all post-ECB pivot gains as geopolitical uncertainty dominates over monetary policy.

EuroStoxx50: crunch time again.

EUR/SEK: Swedish krone briefly gained on stronger than expected (core) inflationary pressures but risk-off interferes.

Brent oil ($/b) tests 90 support level, risks losing upward sloping trend channel.

Note: All times and dates are CET. More reports are available at 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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