Friday, November 25, 2022

Daily Market Overview

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•          The Thanksgiving interludium on global markets today continued. In this respect, today’s moves shouldn’t be overinterpreted. Still, especially EMU interest rates tentatively decoupled from recent markets dynamics. The jury is still out, but long term German and EMU yields are rebounding after a protracted decline over the previous 2 weeks. Bund yields are gaining between 7 bps (2-y) and 11 bps (10-y). From a technical point of view, the 10-y German yield tries to regain the 1.93/95 support (June peak/neckline) lost yesterday. German Q3 GDP, admittedly old news, was upwardly revised from 0.3% Q/Q tot 0.4%Q/Q. German GFK consumer confidence (Dec) also rebounded to -40.2 from -41.9. The data joined recent evidence that the highly anticipated German/European recession might be less deep than feared. Comments from ECB’s Schnabel yesterday and ECB’s Muller today, apparently also served as a warning that the ECB reducing the pace of rate hikes from 75 bps to 50 bps at the December 15 meeting isn’t a complete certainty yet. Monthly inflation data for sure should be put into perspective when a CB decides on policy presumed to bring inflation back to target ‘over time’. Still, an upward surprise at next week’s preliminary EMU November CPI still might keep pressure on the ECB not to mitigate its anti-inflationary campaign too soon. The rebound of core EMU yields also halted recent narrowing trend for intra-EMU spreads. Italian/Spanish/Portuguese 10-y spreads versus Germany widen 5/3/4 bps respectively. Greece (-4 bps) is the exception to the rule. Gains in US yields are much more modest rising 3/4 bps points across the curve. Even so, there is currently no follow-through price action post Wednesday’s poor US PMI. European equities initially tried to continue recent rebound, but sentiment dwindled. The EuroStoxx50 currently is trading little changed. US equity indices open with little changed (Dow/S&P) to marginally lower (Nasdaq). Brent oil gains a few ticks ($ 86 p/b), holding above the key $82/83 support area.

•          The dollar today slightly outperforms other majors even as US yields gain less compared to the likes of the EMU or the UK. DXY is trading near 106.30 after opening near 105.9. USD/JPY (139.45) gains slightly less than one big figure. EUR/USD lacks momentum to attack recent highs at 1.0479/48. The pair is currently changing hands in the 1.037 area. EUR/GBP (0.8585) is going nowhere with the key 0.8560 support still within striking distance.

News Headlines

•           China’s State Council’s statement, promising more monetary stimulus, on Wednesday wasn’t even cold or the PBOC already delivered. The central bank cut the amount of cash lenders must hold in reserve (RRR) by 25 bps. It’s the second time this year it cut the RRR in a bid to support an economy wrecked by damaging lockdowns as covid cases spiral. The adjustment takes place on December 5 and would inject some 500bn CNY in the economy. The Chinese government earlier this month unveiled support as well, targeting the property sector. The additional monetary stimulus is in stark contrast with much of the rest of the world, including the EMU and US, where central banks are tightening to tackle surging inflation. USD/CNY rises today, with a tad of general dollar strength at play too. The pair is currently testing resistance (previous support as neckline in the triple top formation) around 7.175.
•          EU ministers are concerned about time running out to resolve a dispute with the US over its $430bn Inflation Reduction Act, Czech industry and trade minister Sikela told reporters ahead of a meeting of national trade ministers. The bill comes into force on January 1 and contains tax credits and subsidies for products such as electric vehicles provided they are made in the US. The EU at the start of November launched a joint US-EU taskforce to address the matter at hand. It will brief officials from both sides of the Atlantic at a meeting December 5. Irish deputy PM Varadkar said that if no solution was found by then, the EU would have to respond, potentially escalating the dispute into a trade war. France already called on the EU to come up with a similar “Buy European” subsidy regime while German economy minister Habeck also proposed to increase subsidies.

Graphs & Table

Brent oil struggles not to fall below the $82/83 p/b support as uncertainty on global/Chinese growth lingers

German 10-y yield tries to close the week north of 1.93/1.95% key technical reference.

USD DXY TW index looking for a bottom after recent (risk-on driven) setback.

USD/CNY: Chinese yuan weakens to previous neckline as (monetary) authorities pledge further stimulus.

Note: All times and dates are CET. More reports are available at 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.

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