Sun, Apr 02, 2023 @ 05:22 GMT
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Sunset Market Commentary


Most European equity markets opened with losses of about 1% or even more as the negative sentiment spilled over from Asia. However, despite lingering political uncertainty in Germany, the sell-off already reached an intra-bottom soon after the open. Side-effects on bonds (and on the major FX cross rates) remained modest. US equities futures/markets also trade with substantial losses, but for now the risk off doesn’t intensify. Changes in German yields currently are now more than 1.5 bp. US yields decline between 0 bp (2-y) and 2 bp (10-y). However, this ‘bigger’ decline follows a more substantial rise late in US dealings on Friday. Intra-EMU bond markets also showed a mixed picture with Greece (+3 bp) and Itialy (+6bp) underperforming.

The risk-off correction In Asia also supported the dollar. However, the USD gains were much more modest than was the case in a similar context of late. EUR/USD settled close to, mostly slightly below the mid 1.16 area during the morning session. European eco data were close to expectations with no implications for euro trading. USD buying picked up slightly early in US dealings. The trade-weighted dollar is returning to the 95 area. Until now, there is only modest additional damage for the euro from the political crisis in Germany . However, this might still change as crucial talks between Chancellor Merkel and the CSU are scheduled later this evening. USD/JPY is holding strong despite the equity losses (110.85 area). EUR/USD is changing hands in the low 1.16 area going into the publication of the US manufacturing ISM.

Today, sterling declined modestly against a stronger dollar. At the same time, the UK currency drifted basically sideways against the euro. Sterling and the euro were more or less equally affected by the global risk off sentiment. The UK manufacturing PMI wasn’t too bad (54.4 from 54.3, 54.0 expected). However, the report didn’t change investors’ global assessment on the UK economy with Brexit uncertainty still omnipresent. In this respect, UK PM May is said to try a next attempt to find a united view on Brexit within her Conservative party later this week. For now there is no indication that this attempt will be more successful than previous ones. Despite ongoing political uncertainty in Europe, sterling failed to make again further progress against the euro. EUR/GBP hovers in the 0.8858 area. Cable returned to the 1.31 area, reversing part of Friday’s rebound.

News Headlines

Final talks between Seehofer and Merkel concerning the EU migration deal are scheduled at 5 p.m. today. Without a compromise, the party bloc risks a breakup. That would plunge Germany in a political crisis as a CSU-CDU split up could leave Merkel without a parliamentary majority.

The European Union took a first step in a possible lawsuit against Poland’s ruling populist Law and Justice Party. Nearly 3 years ago, the party started revamping the country’s “inefficient and corrupt” Supreme Court by putting it under its control. In a worst case scenario, Poland gets stripped of its EU voting rights.

Friday is said to be yet another crucial day for Brexit. British PM May will then convene her cabinet, present a new post-Brexit customs plan and hold talks consequently, intended to agree on a final Brexit strategy.

KBC Bank
KBC Bank
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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