Sat, Nov 27, 2021 @ 20:00 GMT
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Sunset Market Commentary


Sentiment on global markets improved further today as Chinese authorities took steps to ease market fears after recent regulatory overhaul. The Fed’s commitment to keep a supportive policy stance, at least for now, also helped to push uncertainty on growth to the background. Aside for the overall sentiment, there were also plenty of interesting economic data today. The German CPI data were a first eye-catcher. HCPI jumped to 0.5% M/M to 3.1% Y/Y, the highest level since August 2008. Base effects due to a corona-induces sales tax reduction last year are in play. However, still the figure was higher than expected. HCPI inflation in Spain was also reported to have risen to 2.9%.  Earlier today, German labour data were strong. Unemployment declined much faster than expected (-91 k), lowering the unemployment rate to 5.7% from 5.9%. Economic sentiment the Euro area also rose to the highest level since the start of the series in 1985. Still this combination of higher inflation and good activity data only caused a modest rise in European yields. The German yields curve steepens with the 2-y yield gaining 0.5 bp. Yields for the 10/30-y sector are 1.5 bp higher. In the US, the first estimate of the Q2 GDP failed to meet expectations printing at 6.5% Q/Q annualized while a gain of 8.4% was expected. Consumer spending (11.8%) was stronger than expected, but a negative contribution from inventories and slowdown in housing investment prevented a bigger growth. The core PCE price deflator jumped from 2.7% Q/Q to 6.1%. Weekly jobless claims declined from 424k to 400K. Mixed US data and a constructive risk sentiment also supported a cautious bottoming in US yields. Yields are rising between 0.4% bp and 3.5 bp (10-y) . Even so, the 10-y yield stays well below the 1.30% (1.26%). The 10-y real yield (-1.16%) is holding near the all time low. Later today, the US Treasury will conclude this week’s refinancing operation with the sale of $62 bln of 7-y bonds.

The combination of higher EMU inflation and solid activity data maybe was a slightly supportive for the single currency. However most of the EUR/USD rebound was due to USD weakness in the wake of yesterday’s soft Fed narrative and a further decline in the USD real yield. EUR/USD is testing the 1.1881 resistance. USD/JPY is losing modestly (109.75). The TW DXY index has returned to the 92.00 level. Sterling is holding strong, but the EUR/GBP 0.85 level currently caps further sterling gains against the single currency, with the 0.8472 year low also within reach. Most smaller/more risk sensitive currencies are mostly well bid and this also applies to the CE currencies. The zloty rebounds after recent decline (EUR/PLN 4.5775). Also the forint (EUR/HUF 358) and the Czech Koruna are extending gains. (EUR/CZK 25.53).

News Headlines

According to the flesh estimate as published by the National Bank of Belgium, the Belgian economy in the second quarter grew 1.4% Q/Q to be up 14.5% compared to the same period last year. Value added on a quarterly basis was up 1.1% in industry, 0.5% in construction and 1.4% in services. Even so, activity in the Belgian economy was still 2.5% below the level in the further quarter of 2019. In another release, the Belgian Statistics office reported that inflation in July accelerated to 0.85% M/M and 2.27% y/y (from 1.63% in June), the highest level since March 2019. Core inflation (excluding energy and unprocessed food prices) rose to 1.43% from 1.10%.

The Central Bank of Turkey at the publication of its quarter inflation report upwardly revised the forecast for inflation at the end of this year from 12.2% to 14.1%. At the end of 2022, the CBRT sees at 7.8% from 7.5%. In June CPI inflation was 17.53%. However, CBTR governor Kavcioglu indicated that inflation could fall significantly in the fourth quarter. If so, this might revive the debate on an interest rate cut at that time or at the start of next year. The CBTR policy rate currently stands at 19%. The Turkish Lira today gains modest ground, with EUR/TRY declining to 10.115.

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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