Wed, Jun 23, 2021 @ 12:04 GMT
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Sunset Market Commentary


Similar market dynamics are at play as yesterday in absence of key eco/event news. US housing starts unexpectedly fell by 9.5% m/m, but they did surge nearly 20% in March. Building permits (+0.3% m/m) printed near consensus. The data had no impact. European stocks managed a firm start but rapidly drifted south. The EuroStoxx 50 started by setting a minor recovery high but couldn’t consolidate those gains. Technically, it suggests more potential for downward corrections. Main US benchmarks open near yesterday’s closing levels. Long term bond yields stabilize, but give the impression of willing to go somewhat higher, especially in Europe where the German 10y yield moved beyond key -0.15% resistance. Daily changes on the German curve are confined to +0.3 bps. 10-yr yield spreads vs Germany narrow by 2-3 bps. US yields cede 0.1 bp (2-yr) to 1.3 bps (7-yr) with the belly of the curve outperforming the wings. The dollar remains weak in FX space. The trade-weighted greenback fell below the 90 support area, opening the path for a return to the early January low of 89.21. EUR/USD pierced the 1.22-zone, currently changing hands near 1.2215. A sustained break brings the EUR/USD 1.2349 recovery high rapidly within striking distance. USD/JPY falls below 109, testing this year’s upward trend line. The eco calendar heats up tomorrow with the publication of FOMC Minutes. Investors are eager to find out whether the Fed pays more attention to inflation developments that Powell and the statement suggested. Moreover they’ll be looking for clues on when the asset purchase tapering debate could start.

UK labour market data kicked off this week’s UK releases. The unemployment rate unexpectedly fell to 4.8% in Q1 with employment adding 84k jobs. Both outcomes slightly beat consensus. Weekly earnings ex bonuses rose by 4.6% compared with Q1 last year. Declining April jobless claims bode well for the start of Q2 (-15.1k). Sterling didn’t respond to the slightly positive data beat with EUR/GBP to a lesser extent copying today’s increase in EUR/USD. EUR/GBP actually just switched sides around the 0.86 big figure. Tomorrow’s inflation numbers and Friday’s retail sales and PMI’s still have market moving potential.

News Headlines

Germany’s constitutional court rejected a latest attempt by a group of some 1750 people led by German economists and law professors to block the ECB’s bond buying under PSPP. The group wanted the country’s highest court to revisit its ruling of May last year, when it ordered parliament and the Bundesbank to ensure a so-called “proportionality assessment” of the purchasing programme by the ECB. The ECB eventually did, prompting the finance minister to declare the central bank had fulfilled the court’s requirements. The court’s decision brings the six-year legal challenge to bed.

The Danish government is lifting almost all restrictions in coming weeks, with a majority of establishments able to reopen this Friday. Nightclubs remain the only exception. Danes will have to show proof of being vaccinated, tested negative or have recovered from the virus. Social distancing will continue to apply. Covid cases rose slightly in 2021 but remain relatively contained as restaurants, bars, gyms and other places reopened earlier.

Hungarian GDP growth unexpectedly jumped 1.9% q/q in Q1, following a strongly upwardly revised Q4 from 1.4% to 2.8%. Markets foresaw a -0.1% dip. Compared to the same period last year, GDP was down 2.3%. Growth is expected to surge further out in the year with Hungary nearing vaccination levels as seen in the US/UK, allowing it for a swift easing of the measures. The strong data heat up the inflation debate even further after MNB deputy governor Virag floated the possibility of a June rate hike yesterday. The forint briefly touched the EUR/HUF 350 mark for the first time since August last year in the wake of the release.

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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