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Sunset Market Commentary


European and US yields tanked on Friday after PMIs suggested the economy on both continents is contracting. Those market moves happened against the backdrop of the ECB ending an era of negative rates by a 50 bps hike on Thursday and the Fed on track to deliver another massive-sized 75 bps hike on Wednesday. The economic calendar was rather empty at the start of this week though and it allowed core bond yields to lick their wounds. Data was confined to the German Ifo indicator undershooting analysts’ expectations. The headline number came in at 88.6 vs 90.1 expected, with the decline mainly pushed by the expectations component falling more than 5 points to 80.3. It was the lowest reading since June 2020 and confirmed the bad-news-show that the PMIs brought last week. As such the data didn’t really affect markets even if they were below consensus. An interview with ECB’s Kazaks instead helped German yields bottom out a tad. He said that the central bank may not be done with big interest rate hikes and favours another such move in September. Visco was a bit more balanced in a similar Bloomberg interview but even the Italian ECB governor didn’t express opposition to another 50 bps move. Money markets seem to agree, still discounting a high probability of a 50 bps step in September. The Bund yield curve steepened with changes ranging from 2.8 bps in the 5y to 3.5 bps for the 30y. Support in the 10y yield at around 1.03% survives for the time being. Peripheral spreads narrow with Greece (-19 bps) outperforming peers. Italian spreads trade unchanged. US yields recover from the double end-of-week whammy. Increases vary between 4.2 bps (2y) and 7.9 bps (30y) in a more or less neutral risk setting.

Momentum for the dollar is fading somewhat further. The trade-weighted variant (DXY) edged south to 106.34. EUR/USD, helped by Kazaks’ comments as well, eked out a small gain to 1.024. The Japanese yen is under general selling pressure, losing both against the USD (136.56) and the euro (EUR/JPY trying to recoup the 140 barrier). UK CBI data was mixed today, with total manufacturing orders easing more than expected from 18 to 8 on faltering export but business optimism recovering from the lowest level since April 2020 (from -34 to -21). Average selling prices expected for the next three months continued to ease from 58 to 48. Sterling is overall better bid. EUR/GBP loses the 0.85 area again (0.848). Cable (GBP/USD 1.207) is trying to leave the 1.20 zone behind. News Headlines

The composite economic sentiment indicator of the Czech Republic deteriorated further in July easing 2.6 ppts to 95.7. The decline was both due to weaker consumer and business confidence. Consumer confidence dropped the fifth consecutive month with the index reaching the second lowest reading since the start of the series in 2003 (73.6). Business confidence also worsened with confidence in the Industry falling from to 98.9 (from 106.1). Still, confidence was at the same level Y/Y. Entrepreneurs saw the lack of materials (39% of respondents), the lack of employees (19%) and insufficient demand (15%) as the main barriers to production growth. Capacity utilization in manufacturing rose slightly from Q1 to reach 83.2%, but remains significantly lower in a Y/Y perspective. In other the parts of the economy, confidence in trade eased slightly while construction and services saw a limited improvement. Czech ST yields since last week gradually eased of cycle peak levels as markets pondered further (modest/gradual) CNB rate hikes. EUR/CZK trades little changed in the 24.53 area.

Elsewhere in the region business confidence in Hungary showed a similar picture, easing to 2.0 from 3.7. Consumer confidence fell to -41.9 from -39.4, but is holding north of the 2020 corona low. Hungarian wage growth slowed slightly in May from 15.2% Y/Y to 14,9%. Lower core yields and a better sentiment on the country after a more decisive MNB approach recently gradually helped the forint to rebound back below EUR/HUF 400 (currently 396.25).

KBC Bank
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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