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Sunset Market Commentary

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Plenty of eco data today, but little market appetite to react to them with monetary policy meetings by the US Federal Reserve (Wednesday) and Bank of England (Thursday) looming. August Chinese activity data confirmed a production-led recovery and helped regional bourses (excl. Japan) gaining around 0.5%. Chinese stocks managed a positive close amid CNY strength. USD/CNY pierced through 6.8 support, painting a massive double top on the charts. The neckline of that formation coincided with the 38% retracement level of USD/CNY’s 2018-2019 rise. After the Chinese releases, attention turned to the UK. Employment declined by -12k 3M/3M in July, which was less than the -118k feared. Total COVID-19 job losses now approach 695k. The rise in the unemployment rate (4.1% from 3.9%) over the same period remains limited thanks to the government furlough programme. August jobless claims added 73.7k. The front end of the UK yield curve continued its bounce off the all-time low (-0.15%), bear flattening the curve. Together with constructive risk sentiment (European stock up to 1% higher), it helps explain today’s intraday, technically insignificant sterling rebound. EUR/GBP changes hands around 0.9210 from an 0.9240 open. European focus shifted to September German ZEW-investor sentiment. Both the current assessment (-66.2 from -81.3) and forward looking component (77.4 from 71.5) beat consensus. The former is the strongest level since March; the latter since early 2000. The German government’s additional spending boost and intention to drop the Schwarze Null policy, positively impacted the data. ZEW president Altmaier added that stalled brexit talks and rising Covid-19 cases could not dampen the positive mood with experts continuing to expect a noticeable recovery. FI and FX markets didn’t respond to the release. Daily changes on the German yield curve vary between -0.1 bp (10-yr) and +0.6 bps (2-yr). Comments by ECB Panetta highlighted the open divide within the central bank on the FX rate. The central bank needs to remain vigilant on the inflation outlook and must carefully assess FX developments. The outlook remains highly uncertain with risks tilted to the downside. The quotes didn’t hold the euro back. EUR/USD tested the 1.19 big figure before the release of today’s final eco data coming from the US. The September Empire Manufacturing Survey improved from 3.7 to 17 with accelerating shipments and orders suggesting a boost for factories. US industrial production increased by 0.4% m/m in August following an upwardly revised 3.5% m/m bounce in July. US Treasuries barely budged with daily US yield changes varying between flat (2-yr) and +0.7 bps (30-yr). US stock markets extended their bounce in the US open with Nasdaq leading the pack (+1.5%).

News Headlines

The Problem Solvers Caucus, a group of 50 Democratic and Republican members of Congress are due to unveil a $1.5tn bipartisan coronavirus relief package later today. The stimulus proposal includes another round of direct checks to US citizens, $500 bn for state and local governments and jobless benefits and is aimed at breaking the more than a month-long impasse in Covid-19 talks.

The Polish central bank (NBP) kept rates unchanged at 0.10%. The NBP introduced near-zero rates since May, along with quantitative easing to shield its economy from the coronavirus. Second quarter growth eventually came in better than expected but in a sign momentum might be waning, final August inflation, confirmed today, continued to slow down. The Polish zloty trades little changed in the 4.44 EUR/PLN area.

The European Commission is preparing to offer its banks an extension of 18 months on access to London’s clearing houses after the Brexit transition period expires at the end of the year. Not doing so would force EU banks to start the potentially disruptive task of removing business from UK’s houses next month even as the EU has little alternative venues with sufficient capacity.

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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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