Monday, April 25, 2022

Daily Market Overview

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• Risk aversion haunts trading today, though markets are off worst/best intraday levels. The accelerating Chinese Covid-outbreak prompted authorities to close down parts of Beijing and adds to global growth worries. European equity markets currently cede up to 1.5%. The Chinese yuan is in freefall ever since last week’s publication of Q1 GDP numbers. USD/CNY today tested the 2021 top at 6.58. Last week around, the pair was still changing hands around 6.35. USD-strength remains part of the story as well in the tough risk context. Especially as the greenback has FOMC Chair Powell’s blessing. The trade-weighted dollar set a new recovery high at 101.75, the strongest level since March 2020. The spike during the early-Covid liquidity crisis at 102.98 serves as next resistance with the 2017 top at 103.82. The strong dollar showed in other FX pairs as well. EUR/USD fainted at the start of European trading, sliding to 1.0707 from an Asian high at 1.0851. The pair currently recovered towards 1.0742. JPY fails to really catch a break despite risk-off market sentiment and despite declining commodity (energy) prices. USD/JPY eases below 128. Brent crude falls from $106/b towards $101/b. Cable (GBP/USD) suffered a second straight beating, crashing to the low 1.27 area from 1.30+ levels early last week. The queen’s money is additionally vulnerable to the rapidly developing UK cost of living crisis, as proven by last week’s and this morning’s dismal eco data. It’s the lowest level for cable since September 2020. EUR/GBP slightly extends gains at 0.8430. Core bonds attract a safe haven bid, correcting higher after last week’s fierce sell-off. US yields drop by 7.3 bps (30-yr) to 12.7 bps (7-yr) with the belly outperforming the wings. The German yield curve shifts in similar fashion with yield declines ranging between 6.4 bps (30-yr) and 13.5 bps (5-yr). 10-yr yield spread changes vs Germany widen by 1 bp to 2 bps. Today’s eco calendar didn’t inspire trading. April German Ifo business sentiment stabilized from a steep drop in March, but didn’t surprise following last week’s PMI’s. The Belgian debt agency raised the maximum amount on offer (€3.8bn) at today’s regular OLO auction. The Kingdom tapped OLO’s 81 (€1.37bn 0.8% Jun2027), 94 (€1.54bn 0.35% Jun2032) and 95 (€0.9bn 1.4% Jun2053). The auction bid cover was mediocre at 1.71. They now completed 41% of this year’s €41.2bn OLO funding need.
News Headlines

• According to the quarterly trends survey of the Confederation of British Industry, business optimism dropped from -9% in January to -34% in April, the sharpest pace since April 2020. Output growth in the quarter to April slowed to 19 from 27, but remained above the long term average of 3%. Orders slowed from 38% in January to 22% in April and firms expect a further deceleration in the next three months (6). Average costs in the quarter to April rose at the fastest pace since 1975 (+87%). Domestic costs (60% from 40%) grew at the fastest pace since 1976. Firms see the cost of raw materials as the most important factor behind expectations for cost growth in the next three months, followed by energy costs, transport costs and labour costs. More pessimistic forecasts also caused a setback in investment plans (6 from 26). Sterling already was in the defensive as markets pondered the consequences of the cost-of living crisis on growth and on monetary policy going forward. EUR/GBP touched a (minor) new ST correction top near 0.8440 after the CBI release.
• Belgian April consumer confidence recouped ground lost in March. The overall figure rose from 0.4 to 2.4 in the first increase in five months. This was thanks to an improvement in all sectors but services where every subcomponent – though still positive – edged lower. The manufacturing industry turned less negative on their current level in order books and more optimistic on future employment while demand forecasts point downwardly. The latter was also visible in the building industry. But for the time being, it still enjoys a well-filled order book. Trade recovered the most visibly in April, with all components of the indicator improving, especially in demand forecasts and orders placed with suppliers.

Graphs & Table

Brent crude crashed towards $101/b on Chinese growth worries. Multiple top formation in the making

USD/CNY: Chinese yuan in freefall since last week’s Q1 GDP and monthly hard data

GBP/USD: USD-strength and GBP-weakness pull cable to its lowest level since September 2020

EU 2y swap rate: correction lower in risk-off climate after last week’s vigorous rally

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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