Sunset

Friday, May 20, 2022

Daily Market Overview

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Markets

• Coming straight from Investopedia: Bear market rally refers to a sharp, short-term rebound in share prices amid a longer-term bear market decline. It has an awful lot of similarities with the surges that we’ve seen over the past couple of days. Sometimes the rally is technically driven, like the one that started end of last week but ended abruptly on Wednesday. On other occasions, such as today, there’s a story that gets investors excited more than it should. The news came from China, where the authorities lowered a key rate by more than expected to boost the economy. While helpful, it’s unlikely this will save the Chinese and by extension global economy from a sharp growth slowdown. We’ll see just how long today’s narrative lasts with PMIs providing a new economic update next week. It does provide some relief on stock markets to the tune of 1.5% in Europe. From a technical perspective, the EuroStoxx50 has about double that amount to run before hitting the downward sloping trendline that has capped upticks ever since the start of the year. US equities inch up to 1.3% higher (Nasdaq). Core bond yields recover here and there but it’s not very convincing. Changes in the US vary from +1.2 bps (2y) to -0.9 bps (30y). The German yield curve steepens by shedding 1.1 bp at the front while adding up to 5.5 bps in the 30y yield. We’ve had another splash of ECB speeches but none of them really influenced markets. Italy’s Visco, Germany’s Nagel and France’s Villeroy all reaffirmed expectations for a July rate lift-off. At Davos next week, themed History at a Turning Point: Government Policies and Business Strategies, we look for president Lagarde to rubberstamp such a scenario. Whether that will suffice for the euro, remains to be seen. The common currency today at least didn’t profit, neither from the ECB comments nor from buoyant sentiment. EUR/USD traded a narrow sideways range of half a big figure. It is currently changing hands a little lower than opening levels (1.056). The dollar is showing little direction either. Trade-weighted DXY is struggling to keep the 102.98 support level (March 2020 high) while USD/JPY is trading unchanged at 127.84. The Japanese yen fails to profit from CPI after 8 years (longer even when discarding effects from a tax increase in 2014/2015) hitting the BoJ’s 2% target. Markets are fully aware that temporary base effects are at play and that the current cost-push inflation (as the central bank describes it) won’t trigger a change in the policy stance. The two-day rally by the Swiss franc is taking a breather. EUR/CHF stabilizes sub 1.03. UK data this morning was a mixed bag: UK consumer confidence tanked to a new historic low, narrowly surpassing the previous one dating back to the GFC. Retail sales on the other hand were surprisingly strong, coming in at 1.4% m/m (both headline and core) and defying expectations for another decline. Sterling strengthens, helped by risk sentiment. EUR/GBP eases from 0.849 to 0.845 currently.
 
News Headlines

• Belgian consumer confidence slightly picked up for a second month straight (-13 from -14), but is nowhere near recovering from the steep drop in March when the index plummeted from 1 to -16. Belgian households were once again slightly more optimistic about the outlook for the general economic situation (-35 from -38). Concerns over a rise in unemployment during the next twelve months also lessened (10 from 15). Households’ expectations regarding their personal financial situation remain decidedly subdued (-9 from -10) despite a very slight improvement this month. Besides, they expect to save less in the months ahead (4 from 8). Belgian business confidence will be published next week on Monday.

• Finnish gas importer Gasum Oy said that natural gas imports from Russia will be halted tomorrow as the country refuses to pay for the fuel in roubles. It’s the third European country facing this problem following Poland and Bulgaria. Finland’s move to join defense alliance NATO is probably the untold reason for the move. The lost supplies will probably have a minimal impact on the Finnish economy as it makes up for around 5% of the nation’s energy mix.

Graphs & Table

USD/CNY: yuan extends rebound after China lowered key rate to support ailing economy.

EuroStoxx50: beware of the bearish trap.

EUR/USD rebound already stalls near 1.06 despite optimistic sentiment.

AUD/USD enters general elections on Saturday above important support near the 0.70 area.

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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