Friday, January 28, 2022

Daily Market Overview


• Risk sentiment remains shaky with main European indices losing up to 2%. The EuroStoxx 50 does hold above the lows from the start of the week (4035) and the incoming mild uptrend line / neckline multiple top formation (4051). Losing those levels would be disastrous from a technical point of view and introduce the start of a new selling wave. We understand investor caution going into the weekend given the instability in the Russia/Ukraine conflict and following this week’s hawkish Fed message. US equity futures turned Apple-led gains into losses and face a key session as well. The same reasoning holds as for European indices: stay above the lows from the start of the week or risk a new selling wave. The dollar initially eked out additional gains with a new recovery high for DXY at 97.44 and for EUR/USD at 1.1121, but started losing momentum going into the US eco data releases. The move coincided with rebound action higher in short term US Treasuries. December PCE deflators were roughly in line with expectations, but this shouldn’t surprise after yesterday’s Q4 GDP print. Income-related figures disappointed. The employment cost index slowed from 1.3% Q/Q in Q3 to 1% Q/Q in Q4. Personal income rose by 0.3% M/M in December, down from 0.5% and vs 0.5% expected. Personal spending declined by 1% M/M. The US yield curve currently bear steepens with yields adding 0.3 bps (2-yr) to 2.6 bps (30-yr) across the curve. German yields rise by 1.5 bps to 4 bps with the belly of the curve underperforming the wings. A weak German Q4 GDP print (-0.7% Q/Q) didn’t meet with haven buying as it was already flagged by the statistics office. European bond markets continue repositioning in the direction that the ECB will one day or another finally give in to building inflationary pressures. A taper acceleration and 2022 rate hike both feature in such scenario. 10-yr yield spreads vs Germany are broadly unchanged. The fifth attempt to elect an Italian president failed as well. There will be an extra voting round later today. Next week’s eco calendar features the key US eco data at the start of the month (ISM’s, ADP & payrolls) and several central bank meetings. The ECB meets on Thursday, but for now is expected to keep a blind eye to the inflation problem. The March meetings, including new forecasts, is probably the better fit to make a U-turn. The Bank of England is expected to deliver back-to-back rate hikes for the first time since 2004. Lifting the policy rate to 0.5% will simultaneously initiate the natural roll-off of the balance sheet. The Czech National Bank is number three to convene on Thursday and will likely deliver another 75 bps rate hike to 4.5%. The CNB has one the most aggressive tightening cycles amongst developed nations for now. Based on current forecasts, it could be the last or second-to-last rate hike with the CNB policy rate peak probably being somewhere between 4.5% and 5%. The Australian central bank (RBA) on Tuesday could decide to abruptly end net asset purchases and perhaps open the window for rate hikes later this year, something money markets are already discounting.


News Headlines

Belgian GDP grew 0.5% q/q in the final quarter of last year, preliminary data by the NBB showed. Compared to the same period one year earlier, GDP was 5.6% bigger and 6.1% on an annual basis. The industry pulled the economy, growing 3.3% q/q in value added, followed by the services industry at a distance (0.3% q/q). Construction declined 0.6% q/q. Inflation in Belgium meanwhile soared in the first month of 2022. Prices rose a stunning 2.23%, the largest m/m increase since March 1951, to bring the yearly figure a near four-decade high of 7.59% (vs 5.71% in December). 4.97 ppt comes from surging energy alone. Core inflation however also rose, from 2.53% y/y to 2.98%. Services inflation accelerated from 2.82% to 3.35%.


• The cost of insuring sub-IG corporate bonds via credit default swaps hit the highest level since November 2020 in Europe and the US. Spreads with investment grade CDSs reach a similar milestone. Insurance costs have been on the rise since the start of the year with markets becoming wary of the potential impact of (US) monetary policy normalization on the corporate life.

Graphs & Table

German 10-yr yield: underlying momentum remains an upward one

UK 2y yield moves above 1% for the first time since 2011 as markets start pricing more aggressive BoE tightening cycle

AUD/USD tests 0.70 support zone in fragile risk environment and expressing little confidence in an RBA policy turn next week

EUR/GBP grinds towards 0.8282 support in the run-up to next week’s BoE meeting

Data source: Bloomberg

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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