Tuesday, 10 September 2019

P. 1

Rates: German 10-yr yield closes above 1st minor resistance

Fresh rumours of German fiscal spending plans and fear that the ECB won’t be able to live up to huge easing expectations built over Summer triggered new selling in Bunds. The German 10-yr yield closed above 1st minor resistance at -0.61%. US Treasuries slid in lockstep. Today’s empty eco calendar suggests that similar themes could remain in play.

Currencies: EUR/USD rebound blocked as both US and EMU yields rise

EUR/USD initially made some further progress as the debate on EMU/German fiscal stimulus flared up, but the move was counterbalanced by higher US yields. The theme of fiscal stimulus is in theory euro supportive. However, EUR/USD will probably stay in wait-and-see modus ahead of Thursday’s ECB meeting.

Calendar

• US stocks reversed intraday gains to close virtually unchanged. The Nasdaq

(-0.19%) underperformed. With little news to guide investors, Asian equities are trading mixed. China (-0.5%) underperforms.

• Chinese CPI accelerated to 0.7% MoM (2.8% YoY) in August. The increase is almost entirely driven by a further rise in pork prices due to the swine-flu outbreak. Producer prices meanwhile declined -0.1% MoM (vs. -0.2% in July).

• PM Johnson’s second bid for an early election on October 15 did not receive the required two-third majority again yesterday. After closing a tumultuous session, the British Parliament is now suspended until October 14.

• The trade war and the prospect of a no-deal Brexit are “darkening” the global outlook, rating agency Fitch said, adding that the latter would “materially lower” EMU growth. Fitch also downgraded Chinese growth forecasts.

• North Korea said it is willing to restart denuclearization discussions in late September, but warned that the US had to come up with a different approach or talks could fail again as they did in February.

• Italian PM Conte won the first of two confidence votes in parliament yesterday. Conte pledged to work closely with Brussels on the 2020 budget that would entail lower labour taxes and a minimum wage.

• Today’s economic calendar contains US small business optimism (NFIB). The July labour report is due in the UK. Germany (2046 linkers) and the US (3-year Notes) tap the bond market.

Headlines

Tuesday, 10 September 2019

P. 2

German 10-yr yield above 1st minor resistance

Global core bonds started the week in defensive mode. German Bunds faced selling pressure as rumours about German fiscal spending gain traction. Latest talk suggest the possible creation of a Shadow Budget for investments in infrastructure and climate protection. Some final repositioning ahead of the ECB meeting might haven been at play as well with more and more people, including us, questioning whether the ECB will live up to huge expectations built over Summer. US Treasuries followed Bunds lower with the mid-month refinancing operation exerting some downward pressure as well. Both the German and US yield curve bear steepened on a daily basis. German yields rose by 1.3 bps (2-yr) to 7.7 bps (30-yr). The German 10-yr yield closed above first minor resistance at -0.61% with the 30-yr yield testing 0%. US yields rose by 5.1bps (2-yr) to 10.3 bps (30-yr). 10-yr yield spread changes vs Germany ended nearly unchanged with Greece (-4 bps) outperforming.

Most Asian stock markets are mixed this morning with China (-0.5%) underperforming. Chinese producer prices declined for a second straight month (-0.9% Y/Y). Headline CPI rose by 2.8% Y/Y but was mainly driven by higher food prices (pork). Core CPI slowed from 1.6% Y/Y to 1.5% Y/Y. The Bund and the US Note future trade stable near yesterday’s sell-off lows. Today’s eco calendar is again unenticing with only US NFIB Small Business Optimism and a $38bn 3-yr Note auction. We don’t expect them to influence trading, extending the void until the ECB meeting. General sentiment will be the main driver for trading with core bonds building a topping out pattern. The German reflationary idea is something to keep in mind. Regarding the ECB meeting, we expect President Draghi to deliver on his July “promise” to ease monetary policy. More specifically we expect a 10 bps deposit rate cut, possible with a tiered system, and an extension of current forward guidance to keep rates lower for longer. The money market is currently split on whether the ECB cut will be one by 10 bps (55%) or by 20 bps (45%). Some analysts expect the ECB to engage into a new asset purchase program as well, but that’s not our base scenario. Overall, we think it might be hard for Draghi to deliver on very dovish market expectations. Recent ECB speeches suggest growing consciousness within the central bank about negative side-effects from additional easing.

Technically, the German 10-yr yield tries to return above first minor resistance (-0.61%). A sustained break higher calls off the downside alert. Similar resistance for the US 10-yr yield stands around 1.6%. On the downside, key levels are 1.44% and 1.32% (all-time low).

Rates

A

German 10-yr yield: trying to take out first resistance (-0.61%) US 10-yr yield: testing upper bound of 1.44%-1.6% trading range

Tuesday, 10 September 2019

P. 3

EUR/USD holding north of 1.10, but no further progress as bot US and

EMU yields are trending higher

EUR/GBP: holding in the 0.89 big figure as markets await next steps in the Brexit process.

Broad rise in yields keeps EUR/USD in balance The euro traded with a cautiously positive bias yesterday. Early in the session, German July exports printed stronger than expected. Later, the euro was supported by headlines that Germany might be prepared to relax its budget rules and consider fiscal stimulus. Especially LT European yields rose, and EUR/USD rebounded to the 1.1065 area. However, a late session rise in US yields helped the dollar to fight back. EUR/USD closed at 1.1048. USD/JPY finished well above 107 (107.24). Overnight, Asian equities are trading mixed with Japan outperforming and China underperforming. China CPI was unchanged at 2.8% Y/Y, supported by higher food prices. However, PPI printed at -0.8% Y/Y, as prices at Chinese factories are pressured by the trade war. Yesterday, US Fin Min Mnuchin sounded cautiously optimistic on the US-China trade talks. He also indicated that the US wants the currency (manipulation) to be discussed in the talks. The yuan strengthens this morning (USD/CNY 7.1160 area). USD/JPY stabilizes after earlier gains (currently 107.35/40). EUR/USD is drifting sideways in the 1.1040/50 area. There are again mostly second tier US and EMU data today. US NFIB small business confidence (expected 103.50 from 104.70) is interesting but no market mover. We also keep an eye at the US 3-year action. The debate on fiscal stimulus is euro supportive but the rise in yields is broad-based (US and Europe). The USD rally halted last week. EUR/USD regained 1.10. We expect technical, euro cautious trading ahead of the ECB meeting. The euro might gain some further ground if the ECB doesn’t deliver on high expectations or if the market feels that the bank has limited ammunition left. Technically, EUR/USD shows tentative signs of bottoming. A return north of 1.11 would call off the ST negative alert for EUR/USD. Sterling initially rebounded on solid UK production yesterday. Markets also interpreted comments of UK PM Johnson as easing its stance on Brexit. However, the votes in Parliament (Johnson didn’t get an early election) illustrated that the political chaos persists. As parliamentary action is suspended, poltical headlines might fade. UK labour data might have intraday impact on sterling. We expect technical trade in EUR/GBP near current levels as long as the poltical stalemate perisits. Or will Johnson finally make some progress in its talks with the EU?

Currencies

Tuesday, 10 September 2019

P. 4

Tuesday, 10 September Consensus Previous US 12:00 NFIB Small Business Optimism (Aug) 103.5 104.7 16:00 JOLTS Job Openings (Jul) 7331 7348 Japan 01:50 Money Stock M3 YoY (Aug) 2.00%A 2.00% UK 10:30 Claimant Count Rate (Aug) -- 3.20% 10:30 Jobless Claims Change (Aug) -- 28.0k 10:30 Average Weekly Earnings 3M/YoY (Jul) 3.70% 3.70% 10:30 Weekly Earnings ex Bonus 3M/YoY (Jul) 3.70% 3.90% 10:30 ILO Unemployment Rate 3Mths (Jul) 3.90% 3.90% 10:30 Employment Change 3M/3M (Jul) 55k 115k France 08:45 Industrial Production MoM/YoY (Jul) 0.50%/0.50% -2.30%/0.00% 08:45 Manufacturing Production MoM/YoY (Jul) 0.80%/0.10% -2.20%/-0.60% Italy 10:00 Industrial Production MoM/WDA YoY (Jul) -0.10%/0.30% -0.20%/-1.20% China 03:30 CPI YoY (Aug) 2.80%A 2.80% 03:30 PPI YoY (Aug) -0.80%A -0.30% Norway 08:00 CPI MoM/YoY (Aug) -0.50%/1.80% 0.70%/1.90% 08:00 CPI Underlying MoM/YoY (Aug) -0.50%/2.20% 0.60%/2.20% 08:00 PPI including Oil MoM/YoY (Aug) --/-- -1.20%/-8.60% Sweden 09:30 CPI MoM/YoY (Aug) -0.30%/1.70% 0.40%/1.70% 09:30 CPIF MoM/YoY (Aug) -0.30%/1.50% 0.40%/1.50% 09:30 CPIF Excl. Energy MoM/YoY (Aug) -0.30%/1.80% 0.20%/1.70% Events 11:30 Germany to Sell 500 Million Euros of 0.1% 2046 Linkers 19:00 US to Sell USD38 Bln 3-Year Notes

Calendar

Tuesday, 10 September 2019

P. 5

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 1.64 0.00 US 1.59 0.05 DOW 26835.51 38.05DE -0.59 0.05 DE -0.86 0.01 NASDAQ 8087.438 -15.64BE -0.23 0.06 BE -0.75 0.02 NIKKEI 21392.1 73.68UK 0.59 0.09 UK 0.44 0.04 DAX 12226.1 34.37

JP -0.22 0.03 JP -0.29 0.02 DJ euro-50 3495.02 -0.17

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y -0.51 1.49 0.70 Eonia -0.3630 -0.00105y -0.47 1.44 0.68 Euribor-1 -0.4480 0.0040 Libor-1 2.0490 0.000010y -0.16 1.53 0.72 Euribor-3 -0.4330 0.0040 Libor-3 2.1341 0.0000

Euribor-6 -0.4130 0.0100 Libor-6 2.0341 0.0000

Currencies Close -1d Currencies Close -1d Commodities Close -1d

EUR/USD 1.1048 0.0019 EUR/JPY 118.47 0.58 CRB 174.31 1.69USD/JPY 107.24 0.32 EUR/GBP 0.8949 -0.0030 Gold 1511.10 -4.40GBP/USD 1.2346 0.0063 EUR/CHF 1.0958 0.0066 Brent 62.59 1.05AUD/USD 0.6862 0.0016 EUR/SEK 10.6701 0.0308USD/CAD 1.3168 -0.0005 EUR/NOK 9.8586 -0.0401

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Brussels Research (KBC) Global Sales Force Mathias Van der Jeugt +32 2 417 51 94 Corporate Desk(Brussels) +32 2 417 45 82 Peter Wuyts +32 2 417 32 35 Institutional Desk(Brussels) +32 2 417 46 25 Mathias Janssens +32 2 417 51 95 CBC Desk (Brussels) +32 2 547 19 19 Dieter Lapeire +32 2 417 25 47 France +32 2 417 32 65 Dublin Research London +44 207 256 4848 Austin Hughes +353 1 664 6889 Singapore +65 533 34 10 Shawn Britton +353 1 664 6892 Prague Research (CSOB) Prague +420 2 6135 3535 Jan Cermak +420 2 6135 3578

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Rates: German 10-yr yield closes above 1st minor resistanceRates: German 10-yr yield closes above 1st minor resistanceCurrencies: EUR/USD rebound blocked as both US and EMU yields riseCurrencies: EUR/USD rebound blocked as both US and EMU yields riseCalendarCalendar