Tuesday, 22 November 2022
Please  click here  to read the PDF version


•          The by far most eyepopping market move yesterday happened in oil. Prices whipsawed with swings of more than 6% on reports which were later denied that OPEC would consider a 500k production increase in December (see headline below). Other key markets were experiencing a mild risk-off session that spilled over from Asian/Chinese dealings. Stocks fell less than 0.5% in Europe and up to 1.1% in the US (Nasdaq). US Treasury yields rose 1-2 bps in the 2y-7y segment, underperforming the long end of the curve with supply (twin auction in the 2y, 5y) weighing. German yields fell up to 2 bps (10y, testing the 2%) but closed well above intraday lows. ECB’s Holzmann gave a small late-session push in the back. The Austrian governor said he’d back a 75 bps rate hike if things (on inflation) stay the same while only advocating a 50 bps move if CPI “shows a major reduction”. In an interview with the FT this morning, he elaborated further on his views, adding that a three-quarter bps move would show businesses and households the ECB is serious about taming surging price growth. His comments contrasted with those earlier from ECB chief economist Lane who sees a less strong case for such a big hike. The US dollar and to a lesser extend the Swiss franc enjoyed safe haven bids. The trade-weighted index rose from 106.97 to 107.99. USD/JPY rebounded from the low 140 area to 142.14. EUR/USD retreated from 1.0325 to 1.024. EUR/CHF eased to 0.9822, down from 0.986. Sterling held up well despite the risk climate. While still losing out against USD (GBP/USD 1.182), it held a small upper hand vs the euro (EUR/GBP closed at 0.866).
•          Asian trading is quiet this morning. Stocks mostly trade in the green with Japan outperforming peers. A moderately constructive risk context puts the greenback slightly in reverse vs G10 peers. China’s yuan stabilizes around USD/CNY 7.157. About half of the rally up to mid-November has been erased by now. That’s partially on a stronger US dollar. But fading hopes for a quick economic reopening as China enters the winter (sparking more Covid cases) weighs on the Chinese currency too. US cash yields drop between 5-7 bps at the front end.
•          There are again several Fed and ECB speeches due today. If anything, we expect members from the Fed to further side with a tightening slowdown to 50 bps, as did Mester and Daly yesterday. As Holzmann showed, the 50/75 bps debate within the ECB is much more alive. Other things to watch is the OECD’s updated economic outlook and the European Commission’s consumer confidence indicator (November). The Hungarian central bank holds a policy meeting. Markets today may nevertheless lack direction. Europe is counting down to tomorrow’s November PMIs while liquidity yesterday already started to ebb away in the US going into the Thanksgiving holidays.

News Headlines

•          The Wall Street Journal reported that OPEC is mulling a production increase at its December 4 meeting. Delegates told the WSJ that they could boost output by up to 500k barrels per day. The change of strategy (OPEC cut production by 2000k/day last month) would come one day ahead of the EU oil embargo against Russia and the G7’s aim to price cap Russian oil sales. This could strip (part of) Russian supply off the market. Oil prices slipped from $87/b to $82/b after the report, but completely reversed that move later on after Saudi Energy Minister Prince bin Salman said that it will stand by OPEC’s plan to cap oil output and that further cuts aren’t inconceivable.
•          EU Justice commissioner Reynders said that an agreement aimed at resolving the impasse over funding can be reached by end November if Hungary properly implements planned measures aimed at allaying the rule-of-law concerns of the EU. In other Hungarian news, the country’s central bank today is expected to keep its monthly base rate unchanged at 13%. The key rate remains the one day deposit facility which stands at 18%. The latter remains necessary as long as the forint is in the danger zone (> EUR/HUF 400). In this respect can unlocking EU funds relief some stress on the currency and in that way create some wiggle room for the MNB to make monetary policy slightly less restrictive.


The ECB ended net asset purchases and lifted rates by a combined 200 bps since the July meeting. More tightening is underway but the ECB refrained from guiding markets on the size of future hikes. Germany’s 10-yr yield rose to its highest level since 2011 (2.5%) before a correction kicked in. Losing the neckline of the double top formation at 1.95% calls for a return towards the 1.82%/1.77% support zone.

The Fed policy rate entered restrictive territory, but the central bank’s job isn’t done yet. The policy rate is expected to peak above 5% early next year and remain above a neutral 2.5% over the policy horizon. A below-consensus CPI print strengthened some Fed members call to slow down the tightening pace, triggering a strong correction. The move below the neckline of the double top formation at 3.91% suggests more downside potential.

USD for the largest part of this year profited from rising US (real) yields in a persistent risk-off context. Geopolitical and European recessionary risks kept EUR in the defensive even as the ECB finally embraced on a tightening cycle. EUR/USD left the strong downward trend channel since February. The pair tested resistance around 1.0341/50/68 but failed to push through. A weekly doji pattern arose, suggesting potential losses further ahead.

The UK government had to backtrack on its lavish fiscal spending plans which sent sterling initially tumbling towards the EUR/GBP 0.90+ area. Yawning twin deficits and rising risk premia will continue to weigh on the UK currency longer term. The Bank of England stepped up its tightening with a 75 bps rate hike, but warned simultaneously that UK money market expectations about peak cycle are way too aggressive.

Calendar & Table

Note: All times and dates are CET. More reports are available at KBCEconomics.be 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). Read the full disclaimer.

Register for a 2 week free trial today, pass a Growth, Venture or Rocket Tryout and get a funded prop trading account for upto $120,000.