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• Disappointing earnings from tech giants Netflix and Tesla in US after-market hours yesterday to some extent dampened the equity mood in Europe too. The EuroStoxx50 slid 0.5% at the open but soon recovered to trade 0.1% in green currently. Its information technology subindex still eases 2.8% though with semiconductor company ASML slumping after cutting the outlook. The Nasdaq on Wall Street underperforms its peers S&P 500 and DJI too with losses of about 0.4%. US Treasuries and Bunds fell on FI markets. The former slipped with losses extending after US weekly jobless claims printed at a lower-than-expected 228k (240k consensus) for a second week straight. US Yields change +3.7 bps (30-y) to +8.4 bps (5-y). The July Philly Fed Business outlook came in on the weak side of expectations (-13.5 vs -10 expected, stabilizing near the June figure) but a surge in the six month outlook did more than merely counterbalance the headline miss. The series jumped from 12.7 to 29.1, the highest in almost two years with details (new orders, shipments and employment) all looking good. The 10y yield (+6.2 bps) is testing intermediate resistance around 3.79/3.80%. German yields initially moved in opposite ways depending where you looked at the curve before getting caught in slipstream of the US. Changes vary between +1.3 (30-y) and +2.8 bps (2-y). UK gilt yields more or less stabilize after falling off a cliff yesterday on the first weaker-than-expected CPI in four months. The 2y yield recuperates about 4 bps. Turning to currency markets, we spot the Aussie dollar’s outperformance. It follows this mornings stronger-than-expected June labour report, adding pressure to the Reserve Bank of Australia to once again resume tightening in August after a pause at 4.1% in June. AUD/USD surpasses the 0.68 mark. Neither the US dollar nor the euro have a clear directional trend. EUR/USD is showing further signs of a gentle topping out with the pair moving south of 1.12. For the technical dollar picture to improve, a return sub 1.1095 is required. Things are more obvious in the UK. Sterling managed to close off intraday lows after being hit by the CPI numbers yesterday but it turned out to be pointless. EUR/GBP today edges north again towards the 0.87 big figure, moving beyond 0.868 resistance. A weekly close tomorrow above that level is important from a technical point of view.
News & Views
• The Turkish central bank (CBRT) raised its policy rate today by 250 bps, from 15% to 17.5%. Most analysts expected an increase to somewhere between 18% and 20%. Last month, the CBRT started a return to a normal monetary policy stance with an inaugural rate hike of 650 bps (from 8.5%) in an order to regain credibility. It’s a joint effort with the ministry of finance which stopped the costly FX intervention policy to slow the rot in the Turkish lira. Governor Hafize Gaye Erkan is on a mission to establish a disinflation course as soon as possible, to anchor inflation expectations and to control the deterioration in pricing behavior. Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved. For now, underlying inflation trends remain upward stemming from consumption, wages, the TRY rate and services inflation. EUR/TRY today continues to hover around all-time highs of 30+.
• Eurostat cosmetically revised up its Q1 GDP figure for the euro zone from -0.1% Q/Q to stagnation, suggesting that the EMU dodged a (technical) recession after all (Q4 2022 GDP: -0.1% Q/Q). It’s more symbolic than anything else with the outlook remaining grim. KBC Economics expects quarterly GDP growth to be marginally positive in coming quarters, resulting in an annual growth figure of only 0.6% for 2023 as a whole.
Graphs & Table
AUD/USD: Aussie dollar strengthens as tight labour market raises pressure on RBA to resume tightening in August
EUR/TRY: Turkish lira hovers around all-time lows. Central bank raised rates less than expected but vows to do more
US 2y yield extends recent bottoming out with help from fewer jobless claims than expected
German 10y yield: 200dMA does the supporting job well.
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.
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