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Sunset Market Commentary

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The second quarter started in risk-off mode with most risky assets turning red across the globe during mostly sentiment driven trade sessions. Trump’s warning for dire weeks to come reverberated through markets. The US has become the latest coronavirus hotspot and faces significant economic damage. To that extent, today’s ADP job report came in surprisingly well with a job loss of “only” 27 000 whereas markets expected a decline of 150 000. The ADP institute however said the survey does not fully reflect the impact of Covid-19 since it only ran until March 12. Details showed that the decline came solely on the back of small firms which shouldn’t come as a surprise. Also unsurprising is that the health sector kept up well, adding 47 700 new jobs while construction (-16 500), trade and transportation (-37 300) and leisure and hospitality (-10 900) are among the hardest hit. We’re keen to see to what extent Friday’s payrolls will have been affected. European stocks slump some 4%, unimpressed by the EC’s proposal to introduce short-time working schemes in order to save jobs. Wall Street opens with losses of more than 3% as the equity rally ran into resistance. Core bonds profit with UST’s outperforming the German Bund. The US yield curve bull flattens with yield changes varying from -1 bps (2-yr) to -7 bps (10-yr). The German yield curve trades unchanged at the short end while declining 2-4 bps at the longer tenors. Peripheral spreads vs. the German 10y yield widen between 6 (Italy) and 12 bps (Greece).

On currency markets we witness particular euro weakness today. The common currency loses against the US dollar, the Japanese yen and – despite the current risk mood – against sterling. EUR/USD falls in an almost unidirectional move from the low 1.10 area to the low 1.09 (1.092 at the time of writing). There’s probably also some dollar strength at play with USD/JPY almost stable near 107.3 today. The greenback thus feels little downward pressure so far from the extensive liquidity measures the Fed took. EUR/JPY on the other hand falls from 118.50 to 117.3. The euro against sterling extends its 7 day straight decline after a failed test to recoup 0.89. EUR/GBP is currently filling bids around 0.881. Cable trades more or less stable at 1.24.

News Headlines

The US is stepping up efforts to try to end the price war on the oil market between Saudi Arabia and Russia as it is heavily impacting the US oil producers too. U.S. Energy Secretary Dan Brouillette was reported to have had talks with his Russian counterpart Alexander Novak. They agreed to hold future discussions but there are no indications on a solution yet. Brent oil prices is currently trading near $25 p/b, slightly of recent low levels.

The National Bank of Hungary will waive capital buffers for systemically important banks as of July 1 to support lending activity, it said in a statement on Wednesday. The MNB also said to start a one-week repo facility paying 0.9% interest. The forint rebounded slightly after hitting a new all-time low in the wake of a sharp decline in the country’s PMI to 29.1.

The US manufacturing ISM fell back into contraction territory (49.1) although the decline was much less than expected (44.5). All subcomponents show a material deterioration of the US manufacturing sector with output, employment and new (export) orders at the lowest levels in many years. Supplier deliveries soared to 65.0, artificially beefing up the headline figure, as many businesses are closed causing a supply disruption.

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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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