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Sunset Market Commentary


Today, core bonds traded with a slightly negative bias. However, the Bund and the 10-year Note future held tight ranges. There were no important eco data. Global equities regained some further ground after last week’s sell-off but the jury is still out whether this will mark the start of a sustained bottoming out process. US yields are up to 2.2 bp higher with the belly of the curve slightly underperforming and the 30-year outperforming (-1.5 bp) The US 10-year yield touched a minor new correction top intraday. The German yield curve rises about 1 bp, with the 2-year outperforming (unch). 10-y yield spreads versus Germany narrowed slightly in line with a more constructive risk sentiment globally. Portugal (-5 bp) outperformed. Greece (+19 bp) still underperforms.

The dollar lost slightly ground in Asia as global risk sentiment improved after the WS rebound on Friday. There were not eco data in EMU or in the US. European equities and US equity futures tried to build on Friday’s improved risk sentiment, but the rebound was not strong enough to establish clear directional trends on other markets, including in the major dollar cross rates. Core yields hovered near recent peaks with interest rate differentials slightly widening in favour of the dollar. Whatever the reason, the overnight USD decline slowed soon. The topside in EUR/USD was capped just below 1.23 (currently 1.2250 area). USD/JPY held a very tight sideways range, close to mostly just north of 108.50. Markets are looking forward to the new budget proposal of the Trump administration and even more to Wednesday’s US CPI release.

There were also no UK data. BoE’ MPC member Gertjan Vlieghe supported last week’s BoE policy assessment as he indicated that three more interest rate increases over the next few years probably leave the UK economy with some excess demand. He also confirmed that the BoE is on a rate hike trajectory and that the November rate hike was not intended to be just a one off. At the same time, there were plenty of headlines on UK PM May’s ‘Road to Brexit’ initiative as she tries to hammer out a workable strategy for the UK to leave the EU in a constructive way. At least for now the (FX) market isn’t convinced that this will lead to a break-through anytime soon. EUR/GBP hovers in the upper half of the 0.88 big figure. Cable is drifting sideways in the 1.38 big figure.

European equities show gains of about 1.25%, reversing part of last week’s steep losses, but trading of the intraday peak. US indices opened about 1 % higher as investors try to find out whether a bottoming out process might start after last week’s sell-off.

News Headlines

The Swedish unemployment rate as published by the Public Employment Service declined in January to an seasonally adjust 4.0% from 4.1% December. On Wednesday, the Swedish Riksbank will announce its policy decision.

Italian banks’ NPL-reduction is gaining pace as the industry "nears the pre-crisis situation" also thanks to government measures, Finance Minister Pier Carlo Padoan said at an event in Rome.

China’s banks extended a record 2.9 trillion yuan ($458.3 billion) in new yuan loans in January, blowing past expectations and nearly five times the previous month as policymakers aim to sustain solid economic growth while reining in debt risks.Net new loans surpassed the previous record of 2.51 trillion yuan in January 2016.

OPEC expects oil demand to grow faster than expected in 2018 due to a healthy world economy as the organization tries to remove a supply glut by cutting output. However OPEC expects the global oil market will return to balance only towards the end of 2018 as higher prices encourage the US and other non-member producers to pump more. OPEC expects world oil demand to rise 1.59 mln bpd this year, an increase of 60,000 bpd from the previous forecast.

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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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