Sun, Oct 17, 2021 @ 03:52 GMT
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Sunset Market Commentary

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Global markets were supposed to stay in some kind of countdown modus looking forward to the Fed Jackson Hole symposium at the end of this week. For European markets, tomorrow’s publication of the minutes of the July ECB meeting is also a wildcard. With respect to the latter (EMU outlook) some related info kicked in. Contrary to solid EMU PMI’s earlier this week, German IFO business confidence missed expectations. The headline business climate index declined from 100.7 to 99.4. The assessment of the current situation still improved further from 100.4 to 101.4 but the expectations component made a rather big step backward from 101.0 to 97.5. According to Ifo, supply bottlenecks for intermediate products in manufacturing and worries about rising infection numbers are putting a strain on the economy. The release had only a limited and temporary impact on European markets. Later this morning, attention on the European (interest rate) markets was captured by some comments from ECB’s Vice President de Guindos. He assessed the third quarter indicators as positive, expects the ECB forecasts to be upwardly revised and is of the view that if the economy normalizes, fiscal and monetary policy should also so. European/German yields started a gradual intraday rise in the wake of the comments. Admittedly, later in the session, the market hardly reacted to the headlines of a Reuters interview with ECB’s Lane. He held a much more dovish tone, stressed the need for keeping ample financing conditions and also indicated any amendment to PEPP buying is subordinated to this commitment of maintaining favourable financing conditions at least until March next year. Still German bunds today clearly underperformed US Treasuries. German yields are rising between 0.8 bp ( 2-y) and 5.5 bp (30-y). On the other hand, US yields only show marginal gains (10-y yield 1 bp higher at 1.305%). The US July durable goods orders report was close to expectations with overall orders declining -0.1% after a rise of 0.8% the previous month, but shipments of core capital goods still printed at a strong 1% M/M suggesting a positive contribution of investments to GDP growth. On other markets, the rebound in commodities continues with Brent oil trading north of $ 71 p/b. Equities mostly show limited gains, with US indices (S&P and Nasdaq) testing record levels.

Moves in the FX markets were modest compared to the price action on European bond markets. The euro failed to profit from rising interest rate support. EUR/USD is hovering sideways in the lower half of the 1.17  big figure (currently 1.1735). USD/JPY tries to regain the 110 mark. Sterling shows no clear trend with EUR/GBP trading little changed near 0.8560.

News Headlines

The Chair of the US Securities and Exchange Commission Gensler warned Chinese companies with a US listing he plans to strictly enforce a three-year deadline that requires Chinese firms to permit inspections of their financial audits. They risk delisting from NYSE and Nasdaq if they refuse. US Congress gave the SEC a mandate to do so after passing the Holding Foreign Companies Accountable Act in December 2020. Gensler said investors need “full and fair” disclosure on the risks they face, including from a regulatory and political perspective. His comments refer to the recent steep declines in Chinese (tech) stocks after the China’s crackdown on companies that it blames for exacerbating inequality and increasing financial risk.

Belgian business confidence retreated from a historically high 10.10 to a still-elevated 7.60 in August, the NBB’s monthly survey showed today. The decline took place in all sectors with sentiment in manufacturing being hurt most by a much less optimistic view on inventories and to a lesser extend overall demand. Service company leaders turned more cautious on their current activity though the opposite was true for expected future output. In construction, companies saw a significant pullback in order books but stayed positive about demand. Trade, finally, saw prospects for employment increase but sentiment about future demand turned sour.

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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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