Tuesday, February 22, 2022

Daily Market Overview

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• Markets have been preparing for the worst case scenario in the Ukrainian conflict and remarkably breathed a sigh of (short term) relief as it played out. The Russian “peace-keeping” mission in the self-declared separatist republics in the Donbas region met with outrage by the west who is preparing sanctions against the country. These include halting the German certification process to exploit the NordStream 2 pipeline and preparing some sort of financial embargo. The Russian ruble crashed the past couple of days towards the 2020 lows around USD/RUB 80 and is trading there volatile today. Brent crude set an intraday high at $99.5/b. It has been since the summer of 2014 since we’ve seen 3 digits for the black gold. The real precious metal closes in on $1916/ounce resistance which is the June 2021 top. On broader markets, main European equity indices recovered from steep opening losses to currently trade flat on the day. US stock markets lose around 0.5% at the start, but keep in mind that they were closed yesterday in observance of President’s Day. Core bonds showed the biggest momentum turnaround, feeling new selling pressure. Likely as higher commodity prices resulting from the conflict risk amplifying inflationary dynamics and hence speed up policy responses. The US yield curve bear flattens with yields rising by 5.2 bps (2-yr) to 0.4 bps (30-yr). The optical European underperformance against US Treasuries is again partly result from yesterday’s action. German yields add 8.4 bps (3-yr) to 4 bps (30-yr) in a daily perspective. Peripheral bonds perform relatively well, tightening up to 3 bps for Italy. EUR/USD retraced on yesterday’s steps, trading again a little bit higher in well-known 1.13 big figure. The pair is currently changing hands around 1.1340. Sterling is today’s underperformer with EUR/GBP surging from 0.8310 towards 0.8370. UK Gilts today outperform German Bunds. Hawkish BoE governor Ramsden said that some further modest tightening in monetary policy is likely to be appropriate in coming months, but pushed back against aggressive market pricing. The eco calendar contained improving German Ifo investor sentiment – in line with PMI’s yesterday – but didn’t impact trading.
News Headlines

• The Belgium Business Barometer (slowly) declined further from 2.7 in January to 2.3 in February, according to monthly business survey published by the National Bank of Belgium. It was the third consecutive monthly decline. Especially sentiment in business related services deteriorated as the managers’ outlook for general demand faced a substantial downwardly revision. The decline in the manufacturing industry was limited (0.3 from 0.8) and was due to a less favourable assessment in total order books and stock levels. After three consecutive falls, sentiment in trade improved from -4.8 to -2.6 due to positive demand forecasts and projections of orders placed with suppliers. Sentiment in the building industry improved from 0.2 to 2.3. The overall smoothed synthetic curve, reflecting the underlying trend, continued to drop slightly.
• The National Bank of Hungary today as expected raised the corridor of its policy rates by 50 bps. In order to anchor inflation expectations and mitigate second-round inflation risks, the central bank raised the base rate and the overnight deposit rate to 3.40%. The overnight and the one-week collateralized lending rates were increased to 5.40%. The MNB will continue to set the one-week deposit rate at weekly tenders. The MPC indicates that risks to the outlook for inflation have increased and continue to be on the upside, which necessitates the continuation of the base rate tightening cycle on a monthly basis. Deputy governor Virag was quoted that inflation might rise to 8.0%/8.5% in February. After initially losses due to regional geopolitical tensions, the forint intraday rebounded to the EUR/HUF 355.80 area.

Graphs & Table

EUR/HUF: forint rebounds intraday as MNB extends tightening cycle

German 10-yr yield: buy-the-rumour, sell-the-fact on geopolitical escalation with energy prices adding to the inflation problem

Brent crude approaches $100/b for the first time since the Summer of 2014

Nasdaq: sell-on-upticks pattern in the making

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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