Markets

Global core bonds returned a large part of this week’s (and Friday’s) excessive gains in the run-up to the end-of -quarter. The main move occurred around the time of the US opening bell with a strong US ADP Labour market report and a promising start for US equities helping a hand. The German 10-yr yield neared -0.56% before changing track, eventually painting a potential engulfing signal on the charts. The German yield curve bear steepened with yields rising by 0.4 bps (2-yr) to 4 bps (30-yr). 10-yr yield spread changes vs Germany barely moved. The US yield curve moved in similar fashion as the German one with yields adding between 0.9 bps (2-yr) and 2.6 bps (30-yr).

US stock markets had a choppy ride after their good start. They eventually managed to cling on to gains, but ended off the intraday highs. Republican Senate leader McConnell slammed Democratic House leader Pelosi’s latest stimulus bill proposal as another far-left wish list with the same poison pills they previously proposed. Comments by US Treasury Secretary Mnuchin resonate more positively overnight. He remains in close talks with Pelosi with Democrats delaying a vote on their current proposal which would have automatically been killed by the US Senate. It’s impossible to gauge market sentiment based on Asian (equity) dealings with China and South Korea gone for holidays and Japanese trading down by hardware problems. Core bonds do extend yesterday’s slide, suggesting Europe will off for a positive (risk) start.

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The dollar (trade-weighted) closed unchanged yesterday, with a surge in US (real) yields counterbalancing the positive risk sentiment. This morning’s dollar weakness adds to the likely positive risk theme. DXY trades back below 94, which served as the upper bound of the sideways trading range in August and September. EUR/USD undid a break below EUR/USD 1.1696 support, currently changing hands in the 1.1750 area. Today’s eco calendar is again stuffed with US releases (weekly jobless claims, PCE deflators and manufacturing ISM). Better-than-expected releases failed to lift the dollar so far this week. From the European side of the story, we fear that the “magic” of verbally intervening against the euro is worked out. Any comments on the single currency work counterproductive given the ECB’s reluctance and inability to walk that talk

Sterling traded on steroids yesterday with EUR/GBP closing at 0.9072 from a 0.9131 open. BoE Chief Economist Haldane pushed back on expectations that the BoE would be ready to imply negative policy rates any time soon.Technical work would take months and several criteria need to be met afterwards to effectively pull the trigger. No news on the brexit front, is interpreted as good news. EUR/GBP 0.9029/24 serves as first support.

News Headlines

Sentiment among Japanese firms picked-up in July from an 11 year low, according to the BOJ Tankanquarterly survey. However, the improvement was less than expected. The headline large manufacturing index in September improved to -27 from -34. The large non-manufacturing index increased from -17 to -12. The outlook is brighter as well, but at absolute low levels. Gains among smaller companies were also rather modest. Large firms only expect to raise their capital expenditure by 1.4% in the business year ending March 2021, down from 3.2% expected in June

The Fed extended constraints on dividend payments and share buybacks for the biggest US banks through the end of the year because of the uncertainty from the corona virus response and as the banking sector needs to preserve capital, the US central bank said in a statement on Wednesday.KBC Sunrise Market Commentary Thursday, 01 October 2020P. 2 GE 10y yieldGerman 10-yr yield is stuck between roughly -0.60% and -0.30%. No reason to anticipate a break on either side in the short term. Weak eco

 

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