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Sunset Market Commentary


Core bonds extended declines in the wake of Friday’s stronger-than-expected US payrolls report. The 13th beat in a row served as a reminder to investors focused on financial stability and the US debt ceiling that there’s a price stability objective to fulfil as well. At the very least, it prevents the Fed from cutting rates as quickly as markets currently expect (2023H2). With the help of technical support areas and the US regional banking crisis (temporarily) moving to the background, American yields seized the opportunity to leave the YtD lows further behind on the first trading day of the week. Yields add 6.2-6.8 bps across the curve. German Bund yields rise between 3.5 and 5.7 bps, marginally underperforming vs. European swaps. Economic data was limited to German industrial production. March output missed expectations for a 1.5% m/m decline by coming in at -3.4%. But it triggered little else than a kneejerk and temporary Bund tick higher. In late US dealings, the Fed’s Senior Loan Officer Opinion Survey (the US equivalent of the ECB’s Bank Lending Survey) and the Financial Stability report is due and could still trigger some market volatility. Focus after that shifts to the White House. President Biden on Tuesday will host the House Speaker and other congressional leaders in a bid to unlock the debt ceiling stalemate. US April inflation numbers are due on Wednesday. Consensus estimates are for headline inflation to have stopped declining at 5% y/y (0.4% m/m) while core inflation is seen “easing” from 5.6% to 5.5% (0.3% m/m). The UK steals some of the thunder on Thursday with the Bank of England meeting. It will include new projections and a thorough impact assessment of SVB’s collapse. Q1 GDP numbers are scheduled for release one day later. Financial markets on the British island are closed today though, as they enjoy a long coronation weekend.

The big three on currency markets lose out today. The Japanese yen underperforms but since both the USD and euro trade fairly week too, the damage in the likes of USD/JPY (flirting with 135) is contained. EUR/JPY ekes out a small gain to 149. EUR/USD edges north to trade in the 1.104 area. The trade-weighted dollar loses a tad to 101.13. Commodity-driven currencies including the AUD, NZD and NOK perform well today. Oil prices rally for a third day straight (see below). A barrel of Brent (+2%) now trades at $76.73. Gold stabilizes around $2022/ounce after sliding 1.75% last Friday, be it from a level just shy of a record high. Stock markets trade/open flat in Europe/the US.

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Oil and gas prices rise around 3% today, linked to Canadian supply problems. Wildfires are raging through the providence of Alberta triggering a provincial state of emergency. The evacuations of almost 30 000 inhabitants is ongoing with oil and natural gas wells and pipeline systems being shut down. For now, the most hit region is Western Alberta, unlike 2016 when massive wildfires were concentrated in the northeast and forced the shutdown of more than 1 million barrels/day. Brent crude extends last week’s rebound, rising from $75/b to $77/b. Last week, Brent bounced off support in the low $70/b area.

The Chilean peso gained some ground against the dollar with USD/CLP nearing key support at 776/783. The currency profits from local election results where opposition conservatives delivered a big blow to the progressive president Boric’ plans to rewrite the constitution (return to Pinochet era). Right-wing candidates won 33 seats on the Constitutional Council responsible for the rewrite compared to 17 for leftist contenders. The opposition passed the three-fifths majority bar allowing to push through articles at will. President Boric’ first attempt to rewrite the constitution failed last year when it was voted away in a referendum over concerns that it would significantly weaken the country’s free-market economy.

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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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