Tuesday, March 29, 2022

Daily Market Overview

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• High-level talks in Turkey between Ukraine and Russia finally seem to slowly moving in the direction of agreeing on a cease-fire. The FT reported on it first and it was later confirmed by Ukrainian negotiator Podolyak. Russian negotiator Medinsky talked about a potential Putin-Zelenskiy meeting. Russia would also sharply cut military operations near Kyiv and Chernihiv. European stock markets surged by over 3%. The EuroStoxx50 returned above 4000 for the first time since February and is testing the December/January lows which previously served as support around 4027. The stock market comeback is perfectly logical in the narrative that there is even the slightest possibility that the Russia would pull back its troops. However, the risk rally is slightly at odds with what happens on bond markets. European bond markets were in full sell-off mode until oil prices crashed. The faster the war ends, the smaller the economic fallout, the stronger the incentive by the European central bank to tackle inflation. German yields add 3.3 bps (30-yr) to 8.4 bps (4-yr) today in a bear flattening move. Intraday moves have been larger, but markets turned after Brent crude fell $10/b from $115/b to $105/b. It complicates the above-mentioned normalization puzzle by relieving some (future) inflation pressure. The German 2-yr yield turned positive again at one stage for the first time since August 2014. The German 10-yr yield set a new recovery top around 0.73%. The EU 10y swap rate came within 5 bps of the 2015 high at 1.37%. 10-yr yield spreads vs Germany in this context narrow up to 4 bps for Italy which seems also somewhat strange. The expected ECB policy rate peak is gradually rising from 1.25% to 1.50% by the end of 2023. US Treasuries outperform today with yields sliding up to 4.5 bps at the belly of the curve. The single currency is relieved with EUR/USD bouncing from sub 1.10 to test first resistance at 1.1121. A break higher puts 1.1483/1.1495 back on the radar. The Swiss franc gets battered with EUR/CHF approaching 1.04 while the Japanese yen finally catches a break. The diving oil price trumps the positive risk climate. USD/JPY slides from 124 towards 122.50. Central-European FX is flying high. EUR/HUF returns below the pre-war highs around 370. EUR/PLN does the same below 4.70. The Czech currency already outperformed recently, gaining less from 24.60 to 24.40. Apart from energy prices, other commodities ranging from metals over food to gold (see graph), cede ground as well.
News Headlines

• Payscale, a US company that analyzes compensation data, in its new annual report found that 92% of organizations plan to raise wages this year. That’s up from 85% last year and way more than the 67% in Covid year 2020 and comes as more than 75% of them experienced labour shortages last year. The amount of pay increases is also higher. 44% foresee more than 3%, that’s 13 ppt more firms than the average of the last six years. 15% of organizations expect a pay raise in the bucket 4-5% compared to 8-10% in the years 2016-2021. It is nevertheless insufficient to counter spiraling inflation which amounted to 7.9% in February. Official payrolls data for March later this week will offer another glimpse at the current state of the US labour market.
• Australia’s Treasurer Frydenberg revealed the new budget for the fiscal year starting July 1st. It includes a series of measures, many of them designed to alleviate rising costs of living such as a temporary 50% cut to fuel excise, a one-off A$250 payment and another one-off A$420 tax offset for low- and idle income earners. According to Frydenberg, the strong economy (as well as rising commodity/iron ore prices) allows for such additional spending while simultaneously cutting the deficit back from a peak of 6.5% of GDP in 2020-21 to 3.5% in 2021-22 and 3.4% in 2022-23. It is the final budget ahead of the May 2022 federal elections. PM Morrison center-right government has been sliding in opinion polls. The Liberal Party lost power in the state of South Australia in what was viewed as a shock election earlier this month.

Graphs & Table

German 2-yr yield turns positive for the first time since 2014

Gold tests key technical support around $1900/ounce

EUR/USD testing first resistance around 1.1121 on hopes for cease-fire

EUR/HUF drops below pre-war high around 370

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).
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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