Friday’s trading dynamics were most outspoken during US dealings. Markets digested diverging ECB members’ opinions on the need for the most recent easing package. Especially hawks showed their discontent. The post-ECB moves – stronger euro & higher bond yield with the ECB out of ammunition– gently continued. EUR/USD tested 1.1112 resistance (previous range bottom & upper bound downward trend channel), but a break didn’t occur. US eco data grabbed headlines next with retail sales and University of Michigan consumer confidence both beating forecasts. Eco data related to the US consumer are key these days with everybody anxious about when/whether the weakness in the export-oriented manufacturing sector will contaminate the key services sector. The data beat triggered a two-stage sell-off in the US Treasury market with the dollar finding some new breathing space (EUR/USD close 1.1073 vs 1.1065 open). Investors are taking some chips off the table in the run-up to this week’s FOMC meeting. Extremely dovish bets, built over Summer, are being reduced. Apart from the better-than-expected data, central bankers recently on a global level suggested that monetary policy no longer is the fix-all. US yields rose by 8.2 bps (2-yr) to 12.5 bps (10-yr) on a daily basis. The German yield curve bear steepened with yields adding 1.4 bps (2-yr) to 9.4 bps (30-yr). Technically, both the German and US 10-yr yield are gearing up for a test of next resistance, respectively at -0.4% and 1.94%. 10-yr yield spread vs Germany narrowed by up to 5 bps (Italy).

Asian stock markets are mixed this morning in line with WS last Friday. Japanese markets are closed. China underperforms (-1%) following another batch of soft eco figures. The biggest move occurs on the oil market though with the black gold surging by $6/barrel following an attack on Saudi Arabia’s oil infrastructure which halved the country’s production. Currencies like CAD and NOK benefit from the oil supply shock with core bonds gaining some ground. The trade weighted dollar has an upward bias as well. It’s unclear whether or not the attacks will have a lasting impact on oil production. Reserves from Saudi Arabia/the US should cover the shortfall at least in the short run. Today’s eco calendar is thin with only US Empire Manufacturing Survey and a speech by ECB Chief Economist Lane. As designer of the ECB’s easing package, he’ll probably have little market impact. Apart from developments on oil markets, investors are eying Wednesday’s FOMC meeting. That should prevent a technical break in EUR/USD in the very short run. We expect another 25 bps rate cut with the new dot plot pointing to one additional easing step in Q4.

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Sterling had an impressive run last Friday on headlines that UK PM Johnson will meet with EU top officials today to try to broker a Brexit deal. EUR/GBP fell by more than 1 big figure from 0.8971 to 0.8861. Headlines coming from today’s meetings will determine price action on sterling markets. Strong support (62% retracement from May/August rise) kicks in at 0.8809.

News Headlines

Brent oil jumped (temporary) north of $ 70 per barrel this morning after an attack on a Saudi Arabian oil Facility. The event is said to have removed 5% of the global oil supply. The oil price reversed part of the initial during the Asian trading session. The US decided to make the country’s emergency stockpile available to ensure stable supply.

Economic data published in China indicated that the economic slowdown in the country continued in August. Retail sales (7.5% Y/Y), industrial production (4.4% Y/Y) and fixed assets investments (5.5% Y/Y) all printed well below market expectations. The slowdown raised investor expectations that the Chinese authorities will have to take additional measures to stimulate the economy.

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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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