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Sunset Market Commentary

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Global core bonds were mixed today with German Bunds underperforming US Treasuries. The upward trend in core bonds already halted on Friday and continued today. Asian equity markets closed largely in red with European equities following. There was no economic data on the calendar to steer traders. In today’s risk-off environment, German Bunds failed to profit and moved lower. A series of national debt sales (France, Belgium, Greece and Austria) weighed on bonds too. Investors awaited Draghi’s EP address. He confirmed that the incoming data continued to be weaker and said that the persistence of uncertainties weighed on sentiment. He added that the ECB was ready to adjust all instruments if needed. As EU equity markets continued to slide, the German Bund paired some of its intraday losses. The German yield curve bear steepened with changes varying between +0.2 bps (2-yr) to +2.7 bps (30-yr). Sentiment deteriorated even more caused by disappointed Q4 earnings (Caterpillar, Nvidia). US equities opened substantially lower. Contrary to the German Bunds, US Treasuries were able to profit more from the risk aversion. The US yield curve moved lower with changes in the range of -0.6 bps (2-yr) to -1.4 bps (10-yr).

Trading in the major dollar cross rates was confined to tight ranges today. The dollar is hovering sideways after Friday’s setback. Sentiment on risk turning more cautious probably eased the USD downside momentum. Interest rate differentials moved slightly in the disadvantage of the US currency but it was a factor of only limited significance for USD trading. Speaking before the EU parliament In Brussels, ECB’ Draghi reiterated it cautious assessment in the economy. Markets are hardly reacting. EUR/USD (currently 1.1410/15 area) is trading marginally higher in a daily perspective. USD/JPY hovers in the 109.30 area, near the intraday lows. If anything, tentative USD weakens prevails.

Sterling investors saw the glass half empty again. Last week sterling excelled as investors saw the political debate in the UK evolving towards avoiding a no-deal Brexit, likely with a delay of the march 29 exit day. There is still a decent chance that tomorrow’s Parliamentary vote/amendments will result in a delay of Brexit. However, after last week’s sterling rally, investors have apparently already adapted positions in line with a relatively positive/orderly Brexit scenario. Sterling is falling prey to profit taking. EUR/GBP rebounded to the high 0.86 area after testing the 0.8620 key support last week. Over the next 48 hours sterling might be pushed back and forth by an inflation of political comments in the run-up to the Parliamentary votes.

News Headlines

A strike at a Audi plant in Hungary last week, has gained momentum, the union said. Hungarian workers rebuke the wage gap between Slovak and Polish employees and demand an immediate 18% wage increase. The disruption in supplies caused by the strike has already led to a halt in production at Audi’s home factory in Germany.

Greece’s PM Tsipras is expected to announce an increase in minimum wages, which would be the first in almost a decade. Cutting the minimum wages has been a demand of the country’s lenders at the peak of the sovereign debt crisis to make the labor market more flexible and increase the economy’s competitiveness.

Euro zone M3 money supply increased 4.1% YoY in December vs 3.7% in November. The annual growth rate of loans to the private sector increased 3.4% in December (3.3% in November). Among the private borrowers, loans to households increased at a 3.3% rate, while the growth rate of loans to non-financial corporations stood at 4.0%.

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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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