Monday, 7 March 2022
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•          US February payrolls on Friday came in better than expected and saw an upward revision for January too. The Fed is set to kick off the hiking cycle next week, even as wage growth came to a standstill (m/m) last month. Markets couldn’t care less though, with all attention still going to the geopolitical narrative. Alleged Russian shelling at Europe’s biggest nuclear power plant unnerved investors already at the start of Friday’s trading day. Risky assets were sold once again, with Europe in focus. The EuroStoxx50 slid almost 5% and lost support at 3608. US indices lost up to 1.7% in the Nasdaq. Commodities soared. Brent closed just below $120/barrel. Reports of the US discussing a Russian oil embargo fueled already very vivid concerns about shortages. Core bonds enjoyed safe haven bids. US Treasury yields slid with the belly of the curve outperforming. Declines ranged from 5.3 bps (2y) over 6.3 bps (30y) to 10.9 bps (7y/10y). The 10y reference tested 1.70%.  German yields slipped 8.9-13.4 bps with the 10y yield closing near first support around -0.07% and eying a return to -0.11% (New Year gap). The euro continues to fall of a cliff. It lost against all G10 peers. EUR/USD went from 1.1068 all the way to the low 1.09 area. It’s the lowest level for the pair since May 2020. EUR/JPY closed at 125.55, losing the 128 support definitively. EUR/CHF was in proximity of parity (1.002). Less than one month ago, the pair filled bids in the 1.06 area. Not even EUR/GBP (0.826) stood a chance, giving up on 0.8282/0.83 decisively. The few that were even worse off were all situated in Central-Europe. The forint set a new record low at EUR/HUF 387.4. FX interventions in Poland and the Czech Republic did little to help the zloty (EUR/PLN closed at 4.897) or the koruna (negligible gains to EUR/CZK 25.69).

•         The new week unfortunately didn’t bring much change, on the contrary. Screens are flashing red with the same flows seen last week. Asian equities accumulate losses up to 3%. European futures suggest a similar open, which would bring the EuroStoxx50 officially into a bear market (>= 20% declines from the previous cycle top). Core bonds inch higher. The dollar gains, the euro weakens. EUR/USD is trading sub 1.09. EUR/CHF dived under 1 for a few hours this morning. SNB board member Maechler in an interview published last weekend said that the central bank is ready to intervene in the FX market to address the rapidly strengthening franc. Oil prices exploded overnight. Brent almost hit $140 at the open before paring gains to a still-whopping $130/b – the highest level since 2008. Copper hits a new record high. We fear doom and gloom sentiment will stay around for some time to come. Germany’s 10y yield is ready to wipe out all 2022 gains, EUR/USD is preparing for a return to the 1.06/1.08 area from a technical point of view and doesn’t have to count on the ECB for a directional change. Frankfurt on Thursday will most likely put any normalization plans on hold until the geopolitical sky clears up a bit.

News Headlines

•          In a working report to the annual meeting of the Parliament, Chinese Prime Minister Li Kequiang proposed a growth target for the Chinese economy of  about 5.5% this year. Last year China targeted economic growth of over 6%, but finally 2021 growth printed at 8.1%. China for this year again targets CPI inflation of about 3.0% and a budget deficit of around 2.8% of GDP. The latter probably leaves room for further fiscal stimulus if needed. Chinese authorities face a difficult balancing act this year. The country is expected to stimulate the economy by easing controls on the real estate and supporting infrastructure projects.  But authorities need to keep debt levels in check. Last year export growth was an important driver for growth. Data this morning showed that exports over the first two months rose 16.3% Y/Y while imports slowed to 15.5%. This resulted in a further widening of the trade deficit to $115.95 bln (YTD). After opening mostly lower, the yuan rebounded, with USD/CNY currently again trading near 6.319.

•          US policy makers indicated that they are exploring measures that could lead to a ban of Russian oil imports. US Secretary of State Anthony Blinken on Sunday indicated that the US was examining measures with European allies. However, according to sources, the US could starting implementing the ban on its own. In this respect, Blinken also indicated to maintain of a steady oil global supply of oil, which could be important for Europe which is more depended on Russian energy supply. Brent oil jumped close to $140 p/b overnight.


Geopolitics and the fear for higher energy prices to cause a material economic slowdown have hijacked the ECB normalisation narrative. The 10y yield revisited negative territory. Lingering uncertainty and safe haven bids bring back the -0.11% support level on the radar, erasing all 2022 gains.

The US 10y yield tested the symbolic 2% target in the wake of the Fed’s hawkish policy turn and consistently high inflation readings. Fed talk since the geopolitical escalation suggests policy normalization won’t be delayed but safe haven flows caused a return from 2% to the 1.70% previous support.

The euro is in dire straits, suffering more than most other currencies from the conflict at the eastern European borders. Markets have pared back ECB normalization bets. The monetary policy spread as well as dollar safe haven flows caused EUR/USD to stumble to the lowest levels since March 2020. The break below 1.1121/06 paves the way towards that 1.06/08 support zone.

Testament to euro weakness is EUR/GBP in times of risk-off. The pair broke below 0.8282 support to hit the lowest levels since 2016. Regarding monetary policy, the BoE hiked its policy rate to 0.5% in February with further tightening in the pipeline.

Calendar & Table

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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.
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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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