Wed, Dec 02, 2020 @ 00:53 GMT
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Sunset Market Commentary


Risk appetite dwindled somewhat today. Stocks decline slightly with moves up to 0.5% lower. With no major news flashes, today’s move tells nothing more than markets taking a breather after a strong start of the month (f.e. Eurostoxx50 is up already 6%). US jobless claims came in stronger than expected, falling further from 1 186k to a new pandemic low of 963k. Though still very high, it is a sign the pace of layoffs is moderating. Continuing claims dropped from 16090k to 15486k, also a bigger decline than forecast (15800k). The news flipped US equity futures temporarily into positive territory and brought EMU stocks briefly of their intraday lows but the impact on other financial markets is close to non-existent. US Treasuries undid an early, technical driven attempt move higher and trade virtually unchanged. Attention shifts to tonight’s 30-year auction and possible risks of a potential squeeze as short positions on longer-dated Treasuries have been building over the past few days. The German yield curve bull flattens with the belly of the curve outperforming (5y, 10y yields up 3.2 bps). Peripheral spreads widen after a few days of tightening. Italy (+4 bps) and Spain (+3 bps) underperform.

The US dollar remains under pressure unabatedly. Even today’s (mild) risk-off sentiment fails to shore up the greenback against most major peers. EUR/USD extended its rise after taking out 1.18 this morning. The currency pair changed hands at an intraday high near 1.186. USD/JPY trades just below 107 and doesn’t look it’ll push through soon. The trade-weighted dollar (DXY) continued a technical move lower after hitting resistance near the 94 pivot yesterday. DXY 93 barely holds. Sterling went nowhere today. The British currency had an important batch of eco data to swallow this week (GDP figures, industrial production, labour market report) and kept quiet today. Next week, Brexit comes back into focus with a new round of formal talks scheduled. UK negotiator Frost is confident a deal can be reached in September, he said today. EUR/GBP oscillated near opening levels of 0.904 and is currently trading unchanged. Cable is drifting north towards the 1.31 area again thanks to a soft dollar.

News Headlines

The US built pressure on Germany and France to force the EU into settling the historical dispute over illegal subsidies to Airbus by setting additional 25% tariffs on some of their goods. It is removing certain products from Greece and the UK on its tariff list and added an equivalent amount of trade from France and Germany.

French authorities demand a tougher enforcement of the coronavirus containment measures, including the use of masks, as the amount of cases has been rising again since July. Keeping the pandemic under control is key, since “it is the only thing that threatens the gradual but real economy recovery”, finance minister Le Maire said today. With millions of people moving around the country this time of the year, risks of a resurgence is very real, PM Castex added.

High-yield companies already exceeded last year’s total borrowing, having issued some $275bn of bonds in 2020. Junk bonds are popular among investors as they are hunting for yield in credit markets supported by massive government and monetary stimulus programmes. The high-grade market hit a similar benchmark already in June.

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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