HomeContributorsFundamental AnalysisSunset Market Commentary

Sunset Market Commentary

Markets

Our eyes in the first place turned to FX markets and the euro in particular today. The common currency staged quite an impressive comeback yesterday, both against the dollar and the pound. Given the empty economic calendar, conditions were ideal to check whether overall euro sentiment did in fact turn for the better. After a hesitant Asian session, EUR/USD indeed headed north for a test of the 1.188/19 area (up from 1.1874). Momentum looks a bit weak for a break higher. That said, pair isn’t giving up either and remains near that barrier amidst US markets opening. Other major currencies show little direction today. The trade-weighted USD for example is trading only marginally weaker at 92.28. The Japanese yen is a tad softer overall. USD/JPY tries to regain the 110 barrier but remains south at 109.85 for the time being. EUR/JPY is extending gains to 130.61 (up from 130.32). Interestingly, EUR/USD testing the 1.188-zone coincided with EUR/JPY touching but so far failing to push through recovery highs at the 130.6/7 area. This could prove the trigger needed for further euro strength in other currency pairs as well. Anyway, EUR/GBP is performing better, both on euro vigor as well as pound weakness. As the latter occurs in otherwise calm markets (cf. bullet below), it suggests that the sterling bull run, frontrunning positive economic news, has gone far enough for now. An Asian break beyond 0.86 faded during early European dealings but markets are giving it another shot as we speak. At EUR/GBP 0.864, the duo is testing intermediate resistance levels (March correction highs). A close above would pave the way for a test of 0.868.

Moves on other markets were little inspiring. EMU equities opened in red and followed a downward sloping path thereafter. Losses currently mount to about 0.3% and indices as such are still near their more-than-a-decade-high (EuroStoxx50) or all-time high (eg DAX). Wall Street opens with small changes. Core bonds’ net change is near-zero, but that hides an intraday U-turn from strength to weakness. Peripheral spread changes vs. Germany’s 10y yield are marginal. Greece slightly underperforms (+1 bps). Southern European bond sales went very smooth. Italy received more than 64bn euros of bids for its first new 50-year bond in about five years, smashing the previous record by more than tripling it. The bond was priced at BTPS+48 vs. +50 area in guidance. Portugal easily tapped an existing 10-yr bond, with order books filled above 30bn euros and priced at MS+28 vs. +29 area in guidance.

News Headlines

Reuters reports that finance ministers and central bank governors of the world’s 20 biggest economies will agree to boost the IMF’s reserves by $650bn and that they will extend to the end of 2021 the Debt Service Suspension Initiative which shields poor countries from debt service payments and frees up cash to fight Covid-19. The draft seen by the press agency also reinstates a pledge to fight trade protectionism, which has been omitted since March 2017 under impulse of the then reigning US government. A reference in favour of stable exchange rates which dates back to the same period will be removed and replaced to emphasize the importance of underlying fundamentals.

Dutch central bank governor Knot was interviewed by Reuters. He stresses the distinction between economic disappointment in the very short run, especially in businesses affected by lockdowns and optimism from a slightly longer perspective. He doesn’t expect a permanent bump in inflation from the release of pent up savings. If the economy develops according that scenario, he makes the case for gradually phasing out pandemic emergency purchases from the third quarter and to end them as foreseen in March 2022.

KBC Bank
KBC Bankhttps://www.kbc.be/dealingroom
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.

Featured Analysis

Learn Forex Trading