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Sunset Market Commentary


Moderna chief Bancel sent a second Omicron shockwave through markets by declaring this morning in an FT interview that he expects a material drop in vaccines’ effectiveness against the Covid-mutant. The market impact of this second scare was less profound than Friday’s sudden shocker when news really broke. The jury remains out as it will take two weeks to really know how dangerous this new mutant is. Losses on European stock market amounted to 2% early in European dealings, but an intraday recovery process started afterwards. Main indices currently suffer losses of slightly over 0.5%. Core bonds thrived. US yields decline by 2.1 bps (2-yr) to 6.8 bps (7-yr) with the belly of the curve outperforming the wings. German Bunds underperform. The German yield curve bull flattens with yields dropping 0.6 bps (2-yr) to 4.2 bps (30-yr). The November European CPI print is probably partly accountable for the European underperformance, but didn’t deliver the likely reaction in a world without Omicron. Both headline and core CPI accelerated much more than forecast to EMU highs at 4.9% Y/Y and 2.6% Y/Y respectively. Pressure is building on the ECB to prepare an exit strategy away from ultra-easy monetary policy at its December 16 meeting. ECB Vice President de Guindos today warned for the risk that inflation will not go down as quickly and as much as the central bank predicted. The new Covid-outbreak, lockdowns in Austria and Slovakia and new curbs in several other European countries complicate matters for the ECB. On the one hand they pose additional downside risks to growth. On the other hand, they might add to inflationary pressures via supply chains which are longer distorted and via the gradual entrenchment in inflation expectations. Those in their turn pose fresh economic risks and the policy challenge faced by global central banks only grows. The toll of higher energy prices already hurts the weakest consumers with Italy today for example announcing readiness to intervene further in order to limit the impact. The single currency extends its rebound against the dollar and sterling. EUR/USD rises from sub 1.13 towards 1.1380. A disappointing November Chicago manufacturing PMI (61.8 from 68.4 vs 67 expected) slightly added to the greenback’s woes.  EUR/GBP finally took out the 0.85 big figure. The Japanese yen and Swiss franc are the only ones that manage to keep pace with the euro today. Brent crude oil fell to the lowest level since early September, just above $70/b.

News Headlines

Turkish GDP in the third quarter this year grew 2.7% q/q. An upward revision of Q2 from 0.9% to 1.5% compensated for missing the consensus bar (3.3%). Compared to the same quarter one year ago, the Turkish economy is now 7.4% bigger. Growth was driven by all categories but gross fixed capital formation (-1.8% q/q). Private consumption, government expenditure and net exports rose 1.2%, 8.3% and 3.8% respectively. The Turkish lira fails to profit with the overall risk sentiment overriding solid growth figures. EUR/TRY is nearing the 15 mark. Markets are also much more focused on inflation and the monetary policy response (or the lack thereof) to it. November inflation figures are due on Friday and are seen above 20% y/y. The central bank meets on December 16.

The Hungarian central bank in a statement today announced it had widened its interest-rate corridor while making it asymmetrical too. The overnight and the one-week collateralized lending rate – the upper bound – were increased to 4.1% from 3.05% previously. The overnight deposit rate (lower bound) was brought higher from 1.15% to 1.6%. It has done so because Hungarian money market rates were shifting higher and above the base rate (2.10%) following the central bank’s cumulative 110 bps increase in the one-week deposit rate (2.90%) this month. With the move, the central bank has now created “monetary policy room for manoeuvre”, ie: space for more rate hikes. This will probably already happen at this Thursday’s weekly deposit rate setting. The Hungarian forint strengthened marginally vs the euro after the announcement. EUR/HUF changes hand around 366.23.

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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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