Stock Sentiment is Grim


Boston Fed Collins joined the growing chorus of Fed officials trying to reshape market expectations. She said rates need to rise further and even kept the possibility of a 75 bps move on the table. But just as others did, she puts the focus on how high rates ultimately need to be instead of the pace. Her comments helped the dollar to recoup some of the losses endured earlier in the week. Meanwhile, voluntary TLTRO repayments at the ECB were about half of the €600bn estimations, sucking up only a marginal proportion of euro excess liquidity. EUR/USD finished at 1.0325, closing the week below the important 1.035 resistance which was being tested a few times in the days before. The weekly graph now displays a doji pattern, indicating potential further losses ahead. The trade-weighted dollar formed a bullish weekly hammer. Core bonds traded mixed with US Treasuries hugely underperforming Bunds. The US yield curve inverted further with changes between 5.2 bps and 8.3 bps on the account of real yields. German yields’ early attempt to rise soon went into reverse, ending up flat to 1.8 bps lower at the front. UK gilts extended losses following UK finance minister Hunt’s Autumn Statement. Yields rose 3.5 bps (30y) to 6.3 bps (2y). Sterling is given the benefit of the doubt, gaining against the euro (EUR/GBP closed at 0.868) and marginally vs the dollar (GBP/USD closed at 1.189). Risky assets including equities finished 1.20% higher in Europe (EuroStoxx50) and up to 0.6% in the US (Dow Jones). But the likes of oil had an off day. Brent at some point lost about 4.5% before paring some losses. Closing at $87.62/b still meant a weekly loss of 8.7%.

Covid cases in China/Hong Kong are on the rise again and “test” cities that had relatively mild Covid restrictions despite high case numbers saw measures tightened over the weekend, dampening reopening hopes. The story is setting the mood during Asian dealings this morning. Stock sentiment is grim. China and Hong Kong underperform with losses of 2% and more. The dollar thrives in such an environment. USD/CNY advances to 7.16. EUR/USD dips towards 1.027. Core bonds gain.

The economic calendar won’t inspire a lot today. EMU consumer confidence (tomorrow), European PMI’s and the FOMC meeting minutes (both on Wednesday) and central bank policy meetings in Hungary, Sweden and New Zealand will spice the agenda later though. The slew of ECB speakers (Nagel, Holzmann and others) scheduled for today are a wildcard to trading. The US kicks off its end-of-month refinancing operation in a holiday-shortened week (Thanksgiving Nov 24) with both a $24bn 2-y and a $43bn 5-y auction. This could trigger some UST underperformance in a daily perspective. On the FX front, we look out for the dollar to effectively confirm last week’s doji/hammer formation.

News Headlines

The UK Sunday Times reported that senior government officials were exploring a pathway to closer economic ties with the EU under a Swiss-style arrangement over the next decade. The UK government immediately pushed back against the idea with PM Sunak able to address the issue this morning when he’ll deliver a speech at the Confederation of British Industry’s yearly conference. The Swiss-style deal includes several red lines for hardline brexiteers in the tory party, including payments to the budget, EU market regulation and free movement of labor.

Rating agency Fitch affirmed the Italian credit rating at BBB with a stable outlook. Factors that could, individually or collectively, lead to negative rating action/downgrade are debt sustainability concerns for example in case of expenditure pressures, a more severe macroeconomic shock due to energy rationing or other spillovers from the war in Ukraine and a disorderly tightening of financing conditions outside the scope of the ECB’s Transmission Protection Instrument. Italy has a similar BBB (stable) rating at S&P while Moody’s uses a weaker Baa3-rating with a negative outlook.

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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