Tuesday, 29 January 2019

P. 1

Rates: Heavy supply vs risk sentiment

Asian stock market recovered from an intraday blow after the US officially pressed charges against Chinese telco Huawei. The impact on FI markets was hardly visible. Heavy bond supply hangs in the balance today with risk sentiment. Q4 earnings by 3M and Apple risk hurting sentiment. Volumes might remain low though ahead of tomorrow’s Fed meeting.

Currencies: EUR/USD extends rebound as USD is trading soft overall.

EUR/USD regained slightly further ground yesterday after Friday’s ST trend reversal. The dollar remained in the defensive even as sentiment on risk turned negative. FX traders apparently anticipate a soft Fed at tomorrow’s meeting. Sterling reverses part of last week’s gains going into a series of key Parliamentary votes on Brexit today.

Calendar

• US stock indices edged lower yesterday with losses varying around 1% on

disappointing Q4 results. Asian equities opened mostly in red this morning with technology shares underperforming on new US-Sino trade worries.

• The US officially pressed criminal charges against China’s Huawei Tech. company on charges of violating US Sanctions on Iran and trade secret theft. China already responded saying the indictments are unfair and immoral.

• The US administration imposed extensive sanctions on Venezuelan state-owned oil firm PDVSA, a move that escalates the pressure on current President Nicolas Maduro to step down. Maduro said to take legal actions in response.

• The US Congressional Budget Office’s forecasts the US deficit to widen in the coming years. However, the budget deficit will pass $1 trillion only in 2022 (vs. previous est. 2020). It also forecasts the economy to slow over the next 3 years.

• UK PM May faces losing control of Brexit to Parliament today in a series of vital votes on the Brexit deal. May herself abandoned the agreement she negotiated with the EU, in order to support a separate proposal to re-write the deal.

• Australia’s NAB Business conditions fell to 2 in December, down from 11 the month before. AUD/USD lost ground on the news, but recovered afterwards on comments of RBA’s Harper who’s expecting the next rate move to be up.

• Today’s eco calendar contains US consumer confidence and S&P housing data. Greece, Austria, Belgium, Germany and the US tap the market. UK Parliament votes on amendments to the Brexit deal. Pfizer and Apple publish Q4 earnings.

Headlines

S&PEurostoxx 50NikkeiOilCRB

Gold2 yr US10 yr US

2yr DE10 yr DEEUR/USDUSD/JPYEUR/GBP

Tuesday, 29 January 2019

P. 2

Risk sentiment vs heavy supply Global core ended mixed yesterday with US Treasuries outperforming German Bunds. The Bund faced selling pressure in a low volume European trading session with Greece (5y), Austria (10y) and Belgium (30y) announcing near term syndicated benchmark deals. A weak US stock market opening caused a reversal at the start of US dealings. Disappointing Q4 earnings, including from industrial bellwether Caterpillar, amplified global growth worries given its big presence in China. The US Treasury’s 2-yr and 5-yr Note auctions went well. The new CBO forecast showed that the US’s budget deficit will only hit $1tn in fiscal year 2022, two years later than forecasted in April, but that’s mainly because of a decrease in emergency spending. US yields declined up to 1.9 bps (5-yr) on a daily basis. Changes on the German curve varied between -0.1 bp (2-yr) and +2.7 bps (30-yr). 10-yr yield spread changes vs Germany ended nearly unchanged with Greece (-4 bps) outperforming.

Asian stock markets trade currently mixed, but suffered an intraday scare after the US officially pressed charges against Chinese telecom company Huawei. It raises the stakes for tomorrow’s high level trade talks in Washington. Chinese stock markets recovered from the intraday swoon (-2%) while the impact on FI and FX markets was hardly noticeable.

Today’s eco calendar contains US S&P housing data and US consumer confidence. It’s probably still too early to expect positive surprises and we align with consensus. Heavy supply in EMU and the US could weigh on core bonds. Q4 earnings include 3M which will likely signal similar worries as Caterpillar yesterday and Apple after the US closing bell. This could be a drag for risk sentiment and be a balancing/overruling factor for bonds against the supply. The UK parliament votes on amendments to May’s brexit deal, but spillover effects to non-UK markets tend to be limited. We start the day with a small positive intraday bias with investors keeping an eye on tomorrow’s Fed policy meeting. Fed governor Powell will be grilled on the Fed’s balance sheet at the press conference and is expected to confirm comments earlier this month that it could become part of the Fed’s policy strategy instead of letting it run on the background on autopilot. We don’t expect an opening for a March rate hike following January comments by a wide-range of Fed governors, implying the Fed will likely be sideline at least until June.

The German 10-yr yield bounced off 0.15% support, but the picture didn’t change yet. Therefore, the 10-yr yield needs to clear the 0.31% hurdle. The US 10-yr yield lost the 2.75%-2.8% area by the end of last year. This zone now works as resistance in a trading band floored by 2.5%. In both Germany and the US, we think that sufficient bad news is discounted at current levels. However, a clear trigger is needed before declaring a sustained turnaround.

Rates

US yield -1d2 2,59 -0,025 2,57 -0,0210 2,74 -0,0130 3,06 0,00

DE yield -1d2 -0,58 0,005 -0,29 0,0010 0,21 0,0130 0,80 0,03

German 10-yr yield bounced off 0.15% support, but no change to technical picture yet. 0.31% is first resistance

US 10-yr yield. No clear trigger available to regain 2.75%-2.8% area. Sideways action ahead, floored by 2.5%?

Af

Tuesday, 29 January 2019

P. 3

EUR/USD rebounds as USD stays in the defensive ahead of Fed meeting

EUR/GBP: sterling falls prey to profit taking ahead of key votes in

UK Parliament.

EUR/USD drifts back higher in established range The dollar extended Friday’s decline/reversal, but losses remained modest. There were no important data. Risk sentiment deteriorated and equity selling accelerated in the US on disappointing earnings. It didn’t help the dollar which also lost interest rate support against several other major currencies including the euro and the yen. US Treasuries outperform ahead of tomorrow’s Fed decision. EUR/USD finished at 1.1428 (from 1.1406). USD/JPY closed at 109.35 (from 109.55). Asian equities opened in negative territory this morning with tensions between the US and China on Huawei weighing on sentiment. However, losses are gradually reversed and remain limited given yesterday’s US sell-off. The yuan holds strong (USD/CNY 6.74 ). USD/JPY (109.30) reversed an initial loss. EUR/USD (1.1435) remains well bid. The (trade-weighted) USD is holding within reach of yesterday’s lows. The Aussie dollar (AUD/USD 0.7170) dropped temporary on poor business confidence data. However, the move was reversed later. There are again only second tier eco data in EMU today. US consumer confidence (conference board) is expected to decline further from 128.1 to 124.0. The expected decline looks reasonable given the potential impact from the shutdown. Headlines on the China-US trade conflict will probably multiply in the run-up to official talks later this week. The dollar lost interest rate support over the previous days with markets positioning for a soft Fed. We indicated that EUR/USD looks rather well bid as its ST downtrend halted on Friday. We hold on to that view. EUR/USD might still drift cautiously higher in the 1.12/15 trading range. Sterling developed a countermove yesterday on recent sharp rises as investors ponder the potential outcome of a series of key votes in parliament today. Of late, it looked that chances for a delay of Brexit were growing. However, yesterday/overnight UK PM May apparently showed willingness to to try new EU negotiations on the Irish backstop. The next steps in this approach are highly uncertain, causing some further profiting taking on sterling. An outcome that questions the delay scenario further might be a short-term negative for sterling. EUR/GBP is again aheading for the 0.87 barrier.

Currencies

R2 1,1815 -1dR1 1,1621EUR/USD 1,1428 0,0022S1 1,1187S2 1,1119

R2 0,93067 -1dR1 0,91EUR/GBP 0,8683 0,0041S1 0,8620S2 0,8314

Tuesday, 29 January 2019

P. 4

Tuesday, 29 January Consensus Previous US 14:30 Advance Goods Trade Balance (Dec) -$76.1b -$77.0bR 15:00 S&P CoreLogic CS 20-City MoM SA/YoY NSA (Nov) 0.40%/4.49% 0.41%/5.03% 16:00 Conf. Board Consumer Confidence (Jan) 124.0 128.1 16:00 Conf. Board Present Situation (Jan) -- 171.6 16:00 Conf. Board Expectations (Jan) -- 99.1 France 08:45 Consumer Confidence (Jan) 88 87 Italy 10:00 PPI MoM/YoY (Dec) --/-- -0.8%/5.7% Spain 09:00 Unemployment Rate (4Q) 14.47% 14.55% Events 29JAN Greece is likely to issue new 5-y Bond 29JAN Austria is likely to issue new 10-y Bond 29JAN Belgium is likely to issue new 30-Y Bond 29JAN Chinese Committee to consider a foreign investment bill to support US trade negotiations 29JAN UK Parliament votes on amendments to May’s Brexit deal 2018Q4 earnings Harley-Davidson (bef-mkt), Pfizer (12:45), 3M (13:30), AMD (aft-mkt), eBay (22:15), Apple (22:30) … 11:20 ECB’s Villeroy speaks in Paris 11:30 Germany to Sell 5 Billion Euros of 0% 2020 Bonds 19:00 US to Sell USD20 Billion 2-Year Floating Rate Notes 19:00 US to Sell USD32 Billion 7-Year Notes

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 2,74 -0,01 US 2,59 -0,02 DOW 24528,22 -208,98DE 0,21 0,01 DE -0,58 0,00 NASDAQ 7085,685 -79,18BE 0,65 0,01 BE -0,52 -0,01 NIKKEI 20664,64 15,64UK 1,27 -0,04 UK 0,77 -0,02 DAX 11210,31 -71,48

JP 0,00 0,00 JP -0,16 0,01 DJ euro-50 3137,27 -25,97

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y -0,06 2,68 1,20 Eonia -0,3680 0,00105y 0,17 2,66 1,30 Euribor-1 -0,3680 0,0000 Libor-1 2,5000 0,000010y 0,74 2,77 1,46 Euribor-3 -0,3070 0,0000 Libor-3 2,7516 0,0000

Euribor-6 -0,2370 0,0000 Libor-6 2,8323 0,0000

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

EUR/USD 1,1428 0,0022 EUR/JPY 124,95 0,03 CRB 177,47 -3,20USD/JPY 109,35 -0,20 EUR/GBP 0,8683 0,0041 Gold 1309,30 5,10GBP/USD 1,3163 -0,0033 EUR/CHF 1,1337 0,0008 Brent 59,93 -1,71AUD/USD 0,7166 -0,0013 EUR/SEK 10,3484 0,0310USD/CAD 1,3262 0,0044 EUR/NOK 9,7261 0,0149

Calendar

Tuesday, 29 January 2019

P. 5

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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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