Sat, Nov 28, 2020 @ 16:48 GMT
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Sunset Market Commentary


The EU successfully auctioned 10y and 20y supranational social bonds to finance its €100bn SURE programme. The bonds carry a triple A rating. Demand was enormous, totaling over €230bn. From today’s auction, the EU plans to raise €17bn; the bulk (€10bn) from the sale of 10-year debt. The bonds were eventually priced 3 bps tighter compared to initial guidance (10y MS+3 and 20y MS+14). SURE and next year’s €750bn Pandemic Recovery Fund will propel the EU to the top five biggest European issuers, alongside Italy, France, Germany and Spain. Today’s bond auction helped sales across the region to top 1.5tn in one year, another milestone and already beating last year’s 1.38tn record. Apart from this monster bond sale, news was scarce during the EMU trading session. European stocks flip flopped between gains and losses within a narrow range. Wall Street was on track for a nice opening in the green after slipping yesterday but futures paired gains on reports that Google faces an antitrust lawsuit. Last Friday, stocks also fainted in the final hour after news that a Republican Senator would present a regulatory bill against big tech this week. US stocks open 0.5% in the green. German yields shed 1 bp at the longer end of the curve. The Bund isn’t feeling any competition from its upcoming European safe haven alternative (yet). EU swap rates rise 1.1 bp (5-yr) to 1.8 bps (30-yr). USTs underperform today with the curve bear steepening as yields rise 1.5 bps (10-yr) to 2.1 bps (30-yr).

The dollar again traded on the backfoot today even as a fragile risk sentiment in theory favours the greenback. EUR/USD opened at 1.177 and currently changes hands above 1.18 where it is meeting intermediate resistance in the 1.182 region (mid-September highs). That’s also in part euro strength though. EUR/JPY for example extends yesterday’s rise with another jump just shy of 125 (124.84, up from 124.10). Strong investor demand for SURE bonds might have boosted euro appetite. The Hungarian forint remains close at recent lows around EUR/HUF 365/366 after the central bank kept rates steady (see below). EUR/HUF 366 is the last remaining resistance (September high) before the technical charts project a return to the 370 historical highs. The Polish zloty also loses terrain, with EUR/PLN closing in on key resistance at 4.60. Contrary to what was the case over the past few weeks, the Czech krone (EUR/CZK slightly lower at 27.23) is the region’s outperformer very recently. Turning to the UK, sterling faced renewed selling pressure. EUR/GBP captured 0.91(4) decisively with a speech by BoE policy member Vlieghe triggering the move after saying risks to the policy stance are tilted to the downside. More easing could include negative rates adding though that QE is the main tool at present. Brexit negotiators Frost and Barnier continue talks in London but attention is focused on PM Johnson’s press conference later today.

News Headlines

US September housing data were mixed but still suggest that activity continues to be supported historically low interest rates. Housing starts rebounded 1.9% M/M to an annualized rate of 1 415 000, slightly below expectations. The rise in building permits accelerated a stronger-than-expected 5.2% to an 1 553 000 annualized pace, the highest level since early 2007. Both increases were driven by single-family houses while activity in multi-family eased.

The Hungarian Central Bank (MNB) kept both the base rate (0.6%) and the overnight deposit rate (-0.1%) unchanged. The MNB said it will continue to set the more closely-watched one-week deposit rate at weekly tenders, in response to the increased aversion vis-à-vis emerging markets. The Bank will maintain the difference between the base rate and the one-week deposit rate as long as warranted by inflationary risks. The forint recuperates some earlier losses after the statement with the MNB reiterating its commitment on inflation.

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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