Wednesday, January 19, 2022

Daily Market Overview

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• It finally happened: the German 10y yield turned positive for the first time since April 2019. For six hours. The most important European benchmark rate gapped at the open to 0.004% in a catch-up move with a late-session US yield sprint. After hitting an intraday high of 0.02%, yield gains slowly evaporated as the European session evolved. It is currently trading at an, admittedly barely, negative 0.008%. Symbolic/technical breaks like these usually have to meet with swift follow-through price action in order to get confirmation but that’s not the case yet. Bunds nevertheless underperform USTs. The German curve bear steepens with changes ranging from +0.6 bps (2y) over +1.2 bps (10y) too +2.3 bps (30y). Peripheral spreads vs. the German 10 year widen slightly, with Greece (+2 bps) underperforming peers for a second day. US yields fall 1.4 bps (2y) to 0.8 bps (10y), bull flattening the curve after a hefty two-day selloff. With calm returning to the (US) bond market, equities caught a break as well. European stocks advance about 1%. In the US, the tech-heavy Nasdaq outperforms with gains of 0.9%. Oil prices extend gains for a fourth day. Brent ($88.04/barrel) is closing in on the $90 barrier. The International Energy Agency said the oil market looks tighter than earlier thought as omicron is having less impact on overall demand than initially feared. Adding to recent price increases, was Tuesday’s attack on oil-exporter UAE infrastructure as well as an explosion that day that temporarily knocked out an important crude pipeline running from Iraq to Turkey.

• It’s relatively quiet on the major FX markets. The dollar is under marginal selling pressure, providing EUR/USD an opportunity to recover some of yesterday’s sharp losses. The pair is currently changing hands at 1.134, slightly up from 1.132. USD/JPY and the trade-weighted DXY hover near yesterday’s closing price around 114.50 and 95.62 respectively. The Norwegian krone is leading the major FX scoreboard thanks to oil. EUR/NOK eases to 9.93. Central European currencies were visibly relieved after a few tougher days on strong core bond increases and dollar strength. The forint takes the lead over regional peers, sending EUR/HUF down to 355.77. EUR/CZK declines (CZK strengthens) to 24.31, just shy of the previous 2020 lows around 24.25. The zloty is also returning to recent highs against the euro of EUR/PLN 4.52. Sterling is having a good day, not caring one single bit about UK prime minister Johnson’s uncertain political fate. Instead, inflation in December again turned out to be higher than expected and pushed money markets for the first time to fully price in a back-to-back rate hike on February 3 by the Bank of England. The headline figure rose from 5.1% y/y to 5.4%, the fastest pace since 1992. Core inflation unexpectedly quickened from 4% to a three-decade high of 4.2%. EUR/GBP is hitting a new 2-year low at 0.8318. 0.8277 serves as solid support.

News Headlines

• Canadian headline expected fell by 0.1% on a monthly basis, but rose as expected from 4.7% Y/Y to 4.8% Y/Y in December, the highest reading since 1991. The Bank of Canada’s preferred core inflation gauge, the trimmed mean, unexpectedly accelerated from 3.4% Y/Y to 3.7% Y/Y. The Bank of Canada has a 2% inflation target surrounded by a 1% tolerance band. Over the past months, the BoC gradually reduced its net asset purchases to zero. Consensus expected the governor Macklem and his colleagues to start a tightening cycle in March/April, but an outside risk opened up that already conduct a first rate hike at next week’s policy meeting. Canadian money markets discount a total of 5 25 bps rate hikes this year. The loonie continues outperforming today. The oil price rally also delivered a significant push in the back of late. USD/CAD trades near the sell-off lows below 1.25. EUR/CAD set a minor new cycle low below 1.4164, the lowest level since early 2017.


Graphs & Table

EUR/CAD: increasing inflation and strengthening oil prices deliver boost to the Canadian dollar.

EUR/CZK: calm on bond market and constructive equity sentiment brings Czech koruna back to recent/multiyear highs vs the euro.

German 10y yield turned briefly positive for the first time since 2019. Break didn’t meet with follow-through price action yet.

EuroStoxx50: equities have better bid today but quadrupple top formation is bad omen from a technical perspective.

Data source: Bloomberg

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

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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