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Sunset Market Commentary

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Trading on European markets was mostly order-driven and technical in nature. There were no important data in EMU and markets also didn’t get guidance from the US. US markets were closed in observance of Martin Luther King Day. German yields show changes of less than one bp across the curve. 10-y intra-EMU spreads versus German mostly narrow marginally (< 2 bp). The IMF expects global growth the pick-up to 3.3% in 2020 from 2.9% in 2019. The figure was downwardly revised from 3.4% in October. Even so, the IMF sees risks less skewed to the downside compared to its October assessment. European equites show no clear intraday trend. Recent top levels remain within reach. Even without clear guidance from the US, the dollar is keeping the benefit of the doubt. EUR/USD is testing intermediate support near 1.1085. A break below 1.1066 would deteriorate the EUR/USD picture further with next support in the 1.10 area. USD/JPY is changing hands in the 110.15/20 area.

Last week, sterling showed remarkable resilience even as a series of poor UK eco data reinforced market expectations for a 0.25 bp rate cut as the most likely scenario for the January 30 BoE policy decision. Even a very poor UK retail sales release on Friday caused only a minor loss for sterling, especially against an overall weak euro. During the weekend, the focus shifted, at least temporary, from the eco data to the political debate. UK policy makers including UK Fin Min Sajid Javid and PM Johnson signaled that they won’t give in to pressure from the EU to keep regulation closely aligned to the EU. The UK reiterates that it won’t extend the transition period. It also intends to seeks closer cooperation on trade with the US and Africa. The prospect of tough EU-UK negotiations and less easy access to the single market weighed temporarily on sterling this morning. EUR/GBP traded in the mid 0.85 area at the start of trading but sterling again showed resilient intraday. EUR/GBP pair is currently changing hands in the 0.8525 area. Cable is holding near the 1.30 handle. The UK labour market data (tomorrow) and the preliminary PMI’s (Friday) will further shape market expectations on a BoE rate cut at the end of this month.

News Headlines

The EU and China are about to conclude their 26th round of negotiations on the 2013 investment pact after having exchanged offers back in December. EU Trade Commissioner Hogan said they are making progress but is not yet satisfied with Beijing’s latest offer. Hogan said Chinese companies are already being treated equally in Europe and he expects China also to create a level playing field for Europeans doing business there.

ECB Governor Villeroy thinks the central bank should incorporate climate risk into its lending rules and economic models rather than simply turning the current bond buying program into a kind of “green quantitative easing”. The ECB should revise rules on accepting collateral in exchange for funding so that they reflect climate-related risks, Villeroy said.

Iran said it will withdraw from the 1970 non-proliferation treaty, an international agreement designed to stop the spread of nuclear weapons, if the UK, France and Germany trigger the 2015 nuclear deal dispute mechanism, bringing the matter to the UN Security Council. Iran has also been gradually reducing compliance with the latter nuclear agreement ever since the US withdrew and reimposed sanctions on Tehran.

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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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