Monday, 10 September 2018

P. 1

Rates: Trade conflict to reappear on market radar?

US payrolls, and more specifically wage growth, inflicted significant losses on US Treasuries on Friday. The US 2-yr yield hit a new cycle high. Hawkish trade rhetoric by US President Trump is weighing on Asian stock markets overnight, but other risk barometers are more neutral. Trade could retake its role as market driver in absence of other data/events today.

Currencies: EUR/USD nears intermediate support.

On Friday, the dollar succeeded modest gains after solid US wage growth. This week, trade tensions might dominate USD trading at the start of the week. US eco data might become more important later. For now, the dollar might regain the benefit of the doubt. EUR/USD breaking below 1.1540/30 might inspire some further USD gains short-term.

Calendar

• US equity markets lost ground on Friday, ending last week’s trading week with

limited losses. Asian markets open the new week with (bigger) losses, with China underperforming. Only Japan remains marginally in the green.

• US President Trump has said that he is ready to impose tariffs on an additional $267bn on Chinese import on short notice, additional to the previously proposed $200bn that the US government is putting the final touches on.

• After Sweden’s elections, the country is in a political gridlock. Nor left-centred Social Democrats nor the right-centred Alliance bloc is able to form majority governments. The populist Sweden Democrats are Sweden’s 3rd biggest party.

• After an informal summit in Salzburg this month (20th of September) between the EU’s 27 leaders, the EU wants to give its Brexit negotiator Michel Barnier additional guidance and a mandate to close a brexit deal.

• Canada’s foreign minister Freeland left Washington on Friday for a two week break in Nafta-negotiations. No signs of a new Nafta-deal were detected, while US President Trump threatens to impose 25% tariffs on Canadian cars.

• US Congressional leaders are expected to secure a deal today on a package of three spending bills for the upcoming fiscal year. This deal would avoid the partial government shutdown, threatened by US President Trump.

• Today’s US eco calendar is empty, with only Fed’s Bostic to speak. UK industrial production figures and monthly GDP data will be released. The EU and the US resume talks over July Trump-Juncker agreement in Brussels.

Headlines

S&PEurostoxx 50NikkeiOilCRB

Gold2 yr US10 yr US

2yr DE10 yr DEEUR/USDUSD/JPYEUR/GBP

Monday, 10 September 2018

P. 2

Trade conflict to retake grip over markets today?

Global core bonds lost significant ground on Friday with US Treasuries underperforming following August US payrolls. Net job growth remained robust and the unemployment rate is still near cycle lows, but both were close to consensus. Wage growth rising at the fastest pace in the current expansion (0.4% M/M, 2.9% Y/Y) is further evidence of building price pressure in the US economy and caused the damage on core bonds. Uncertainty on US President Trump’s trade rhetoric didn’t intervene. US yields eventually added 4.9 bps (30-yr) to 8 bps (5-yr). The US 2-yr yield set a new cycle high above 2.7%. The German yield curve bear steepened with yields closing 1.8 bps (2-yr) to 3.4 bps (30-yr) higher. 10-yr yield spread changes on EMU bonds markets vs Germany narrowed marginally with Italy (-6 bps) and Greece (-15 bps) outperforming.

Asian stock markets trade lower overnight with China underperforming (-1%) and Japan outperforming (+0.2%). US President Trump sharpened his threats towards China by suggesting imposing tariffs on all Chinese goods. Other risk barometers such as the US Note future, EM FX or JPY point to a more neutral risk sentiment at the start of this week’s trading.

Today’s eco calendar is uneventful with only a speech by Atlanta Fed Bostic after European close. Bostic recently sounded worried about the flattening of the US yield curve and is in favour of only 1 more rate hike this year. Trade developments can in this context reclaim their role as main trading theme and provide a small bid in core bonds. The EU and US also resume talks over the July Jucker/Trump agreement. The eco calendar for the rest of the week remains rather dull with only an ECB policy meeting (Thursday), US retail sales (Friday) and speeches by a whole lot of Fed members. The ECB meeting will probably be low key after the June policy decisions. The ECB handed itself little room to manoeuvre until next Summer, but president Draghi could further stress early signs that inflation will pick up towards the ECB’s goal. The US Treasury’s mid-month refinancing operation (3-10-30) starts tomorrow and could result in more underperformance vs German Bunds.

Technically, both the German 10-yr yield and the US 10-yr yield remain firmly anchored within sideways trading ranges, respectively between 0.3% and 0.5% and between 2.8% and 3%. We advise to play these ranges

Rates

US yield -1d2 2,70 0,075 2,81 0,0810 2,94 0,0730 3,10 0,05

DE yield -1d2 -0,55 0,025 -0,18 0,0210 0,39 0,0330 1,06 0,03

German 10-yr yield: 0.3%-0.5% sideways range

US 10-yr yield: Moving higher in 2.8%-3% range trading

Af

Monday, 10 September 2018

P. 3

EUR/USD nears intermediate support in 1.1530/40 area.

EUR/GBP markets’ GBP-short positioning supports sterling short-

term

USD retains benefit of the doubt post payrolls On Friday, global trading developed in a typically quiet manner going into the publication of the US payrolls. Net job growth was solid (201k vs 190k expected), but June/July figures were downwardly revised. The unemployment rate stabilized at 3.9% but average hourly earnings unexpectedly accelerated 0.4% M/M and 2.9% Y/Y. US yields and the dollar turned north as markets saw a rising probability of two additional Fed hikes this year. Initially, the USD reacted cautiously but USD gains were extended later. EUR/USD closed the day at 1.1553 (from 1.1623). USD/JPY reversed an earlier dip, but closed the session in well-known territory near the 111 level. This morning, post-payrolls USD strength is keeping (some) EM currencies in the defensive, but overal the losses are rather benign. Japan Q2 growth was upwardly revised to a 3.0% Q/Qa. As usual, the yen hardly reacts to Japanese data. USD/JPY is holding near 111. EUR/USD is changing hands near 1.1550. Later today, there are few eco data in the US and in Europe. Trade issues will probably continue to take centre stage. The US and the EU resume talks. President Trump might still announce additional tariffs on Chinese imports, especially as the China-US trade surplus reached a record in August. Trade talks with Canada also didn’t yield a result yet. The eco calendar is back loaded with the US CPI and ECB policy meeting on Thursday and the US retail sales on Friday. Last week, the dollar gained a few ticks against the euro but didn’t break any key resistance. The combination of global uncertainty on trade, lingering EM stress and ongoing solid US eco data, should be a USD-constructive context. We continue to give the dollar the benefit of the doubt short-term, especially against the euro. That said, last week’s price action indicated that a similar context was no guarantee for spectacular USD gains. The EUR/USD 1.1530/40 is a minor EUR/USD support within the established range. A break below might inspire some further USD gains short-term.

Last week, markets saw some tentative signs that the EU and the UK might come closer to a brexit deal, pushing EUR/GBP back below the 0.90 handle. Today, the UK July production data will be pubublished. Still, brexit headlines will probably dominate GBP trading. Last week’s price action suggests the market was still positioned GBP-short, temporarily supporting sterling. However, fundamentally, we see no reason for a sustained GBP comeback without ‘real’ brexit progress.

Currencies

R2 1,2155 -1dR1 1,1996EUR/USD 1,1553 -0,0070S1 1,1510S2 1,1448

R2 0,9033 -1dR1 0,8968EUR/GBP 0,8942 -0,0048S1 0,8628S2 0,8548

Monday, 10 September 2018

P. 4

Monday, 10 September Consensus Previous Japan 01:50 GDP SA QoQ/Annualized QoQ (2Q F) 0.7%A/3.0%A 0.5%/1.9% 01:50 GDP Deflator YoY (2Q F) 0.1%A 0.1% 07:00 Eco Watchers Survey Current SA (Aug) 47.0 46.6 07:00 Eco Watchers Survey Outlook SA (Aug) 48.8 49.0 UK 10:30 Industrial Production MoM/YoY (Jul) 0.2%/1.1% 0.4%/1.1% 10:30 Manufacturing Production MoM/YoY (Jul) 0.2%/1.4% 0.4%/1.5% 10:30 Construction Output SA MoM/YoY (Jul) -0.5%/2.6% 1.4%/2.2% 10:30 GDP (MoM) (Jul) 0.1% 0.1% 10:30 Monthly GDP 3M/3M Change (Jul) 0.5% 0.4% 10:30 Index of Services MoM/3M-3M (Jul) 0.2%/0.5% 0.0%/0.5% EMU 10:30 Sentix Investor Confidence (Sep) 14.3 14.7 China 03:30 PPI YoY (Aug) 4.1%A 4.6% 03:30 CPI YoY (Aug) 2.3%A 2.1% 10SEP-15SEP Money Supply M2 YoY (Aug) 8.6% 8.5% 10SEP-15SEP New Yuan Loans CNY (Aug) 1400.0b 1450.0b Norway 08:00 CPI MoM/YoY (Aug) -0.5%/3.2% 0.7%/3.0% 08:00 CPI Underlying MoM/YoY (Aug) -0.7%/1.7% 0.6%/1.4% Events 18:00 Fed's Bostic Discusses Economic Outlook 10SEP EU, US Resume Talks over July Trump-Juncker Agreement

Calendar

Monday, 10 September 2018

P. 5

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 2,94 0,07 US 2,70 0,07 DOW 25916,54 -79,33DE 0,39 0,03 DE -0,55 0,02 NASDAQ 7902,542 -20,18BE 0,74 0,03 BE -0,47 0,01 NIKKEI 22362,08 55,02UK 1,46 0,04 UK 0,76 0,02 DAX 11959,63 4,38

JP 0,12 0,00 JP -0,11 0,00 DJ euro-50 3293,36 -2,59

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y 0,00 2,94 1,19 Eonia -0,3610 -0,00405y 0,31 2,96 1,33 Euribor-1 -0,3720 -0,0010 Libor-1 2,1310 -0,001610y 0,90 3,00 1,54 Euribor-3 -0,3190 0,0000 Libor-3 2,3313 0,0042

Euribor-6 -0,2690 0,0000 Libor-6 2,5415 -0,0027

Currencies Close -1d Currencies Close -1d Commodities Close -1d

EUR/USD 1,1553 -0,0070 EUR/JPY 128,23 -0,50 CRB 190,36 0,57USD/JPY 110,99 0,24 EUR/GBP 0,8942 -0,0048 Gold 1200,40 -3,90GBP/USD 1,292 -0,0010 EUR/CHF 1,1200 -0,0019 Brent 76,83 0,33AUD/USD 0,7107 -0,0093 EUR/SEK 10,4657 -0,1195USD/CAD 1,3161 0,0019 EUR/NOK 9,7655 -0,0235

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Brussels Research (KBC) Global Sales Force Mathias Van der Jeugt +32 2 417 51 94 Corporate Desk(Brussels) +32 2 417 45 82 Peter Wuyts +32 2 417 32 35 Institutional Desk(Brussels) +32 2 417 46 25 Mathias Janssens +32 2 417 51 95 CBC Desk (Brussels) +32 2 547 19 19 Dieter Lapeire +32 2 417 25 47 France +32 2 417 32 65 Dublin Research London +44 207 256 4848 Austin Hughes +353 1 664 6889 Singapore +65 533 34 10 Shawn Britton +353 1 664 6892 Prague Research (CSOB) Prague +420 2 6135 3535 Jan Cermak +420 2 6135 3578 Jan Bures +420 2 6135 3574 Bratislava Research (CSOB) Marek Gabris +421 2 5966 8809 Bratislava +421 2 5966 8820 Budapest Research David Nemeth +36 1 328 9989 Budapest +36 1 328 99 85

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