Wednesday, 15 January 2020

P. 1

Rates: Heavy EMU bond supply continues with Belgium and Italy

Spain had a bumper bond sale yesterday, drawing over €50bn bids at the syndicated launch of a new 10-yr Obligacion (€10bn printed). Belgium (10y) and Italy (30y) will try their luck today. A complex of second tier eco data/central bank speeches/earnings/US-China trade signing is due today and unlikely to give a strong directional signal for trading.

Currencies: EUR/USD captured in erratic trading pattern. USD to lose yield support?

EUR/USD in technical trading reversed an intraday dip yesterday. Some investor caution on the meaning of the US-China trade deal and easing core yields are mildly USD negative this morning. Will the dollar lose further interest rate support? EUR/GBP tested the post-election top near 0.86, but no break occurred. UK price data might guide sterling trading today.

Calendar

• Most US stock markets erased minor intraday gains after the US dashed hopes

for a removal of Chinese import tariffs. Nasdaq (-0.24%) underperformed. Asia slips in lockstep with China leading the losses (-0.8%).

• The US probably won’t lift the existing levies on Chinese imports until after the November elections. Removing them depends on Beijing’s compliance with commitments made in the partial trade deal, expected to be signed today.

• Ireland’s Varadkar announced snap general elections to take place on February 8. Varadkar took over as PM of a minority government from Enda Kenny in 2017 and seeks a stronger mandate ahead of the upcoming trade talks with the UK.

• The US Labor Department is planning to restrict news media’s early access to key economic data and thus their ability to prepare analyses in advance. The move would follow a similar decision by the Agriculture Department in 2018.

• ECB’s Villeroy said the chances of a recession occurring in the US and Europe this year are so low it can almost be ruled out, adding that the euro area economy is “certainly giving good signs of stabilization”.

• The NY Fed extended the repo operations through at least February 13. It will keep the maximum size of overnight repo’s at $120 billion but longer-term operations are downscaled to $30 billion (from $35 billion) starting Feb 1.

• Today’s calendar contains the Fed’s Beige Book and December US Empire Manufacturing survey. UK CPI figures are due. A flurry of Fed/ECB speeches are scheduled. Germany (tap), Belgium and Italy (syndications) issue bonds.

Headlines

S&PEurostoxx 50NikkeiOilCRB

Gold2 yr US10 yr US

2yr DE10 yr DEEUR/USDUSD/JPYEUR/GBP

Wednesday, 15 January 2020

P. 2

Heavy EMU bond supply with Belgian and Italian deals

Core bonds recovered some ground yesterday. A spike lower in Asian dealings after the US dropped the label of currency manipulator against China was soon undone. US Treasuries outperformed German Bunds in the US session. US CPI (core & headline) inflation printed both at 2.3% Y/Y, but were too close to consensus. Kansas City Fed George said it’s appropriate to keep rates on hold right now given that downside risks have lingered (especially headwinds to business spending). US stocks fainted slightly ahead of the closing bell on headlines that tariffs against China won’t be altered ahead of the presidential election. The US yield curve bull flattened with yields 1.4 bps (2-yr) to 3.5 bps (10-yr) lower. The German yield curve flattened as well with yield changes varying between +0.4 bps (2-yr) and -2.1 bps (30-yr). The German 10-yr yield remains close to, but below, -0.15% resistance (see below).

10-yr yield spread changes vs Germany widened by up to 3 bps (Italy). The underperformance is related to Italy’s announcement to launch a new 30-yr BTP via syndication, likely today. The Belgian debt agency will also be in the market with a new 10-yr OLO (2030). Yesterday, Spain launched a bumper €10bn 10-yr deal (0.5% Apr2030) which drew in excess of €52bn bids. The bond was priced to yield MS + 32 bps, tighter than initial guidance in the MS + 37 bps area.

Asian stock markets lose around 0.5% this morning, following WS’s closing signal. The German Bund and US Note future trade with an upward bias. Today’s US eco calendar contains January Empire Manufacturing Survey, US producer prices, speeches by Fed governors Harker, Daly & Kaplan, the Fed’s Beige Book and more Q4 earnings. This complex of triggers makes it hard to place directional bets. On top, it will be coverage on the signing of the US-Sino Phase 1 trade deal which will draw most media attention. Heavy EMU bond supply could cause European underperformance vs US Treasuries.

Technically: core bond yield’s Q4 upleg was interrupted at the start of the year because of the US-Iran conflict. Geopolitical tensions in the Middle East again proved to have a limited shelf date as market theme. Inflation risk premia remain underpriced at current yield levels and could grab market attention with eg inflation expectations bottoming out. The German 10-yr yield arrived at -0.18% (July high)/-0.15% (38% retracement of Feb ’18 – Sep ’19 decline) resistance which is at significant risk of a break higher. The US 10-yr yield on multiple occasions failed to take out the 1.94% upper bound of the reigning trading channel.

Rates

US yield -1d2 1.57 -0.015 1.61 -0.0310 1.81 -0.0330 2.26 -0.03

DE yield -1d2 -0.58 0.015 -0.48 0.0010 -0.17 -0.0130 0.35 -0.02

Af

German 10-yr yield: -0.18%/-0.15% resistance at significant risk of break higher.

US 10-yr yield: 1.94% proves to be tough resistance.

Wednesday, 15 January 2020

P. 3

EUR/USD: shows no clear trend. Dollar to lose further interest rate

suppor?

EUR/GBP: tested post election top on soft BoE talk, but no break occurred. Will UK price data trigger new test?

EUR/USD is holding ‘erratic’ trading pattern EUR/USD trading remained some kind of erratic in nature yesterday. We didn’t see a close link with data or other eco-related narrative. After a rebound Monday, EUR/USD soon drifted back lower during European session. EUR/USD and EUR/JPY maybe suffered from a less positive risk sentiment. Initially, the EUR/USD decline continued after a (slightly) softer than expected US CPI. However, the 1.11 big survived and EUR/USD rebounded. The move occurred as US yields declined and the US-German interest differential narrowed. EUR/USD closed at 1.1128 (from 1.1134). A topping out of global/US equities also blocked further USD/JPY gains. The pair failed to hold north of 110 (close at 109.99). Overnight, investors are looking forward to the signing of the US-China trade deal. Markets are turning more cautious on the positive impact of the deal as US Treasury Secretary Mnuchin said there won’t be a tariff relief for China before a phase two accord, which probably won’t occur before the US elections. The PBOC provided additional liquidity to the market but kept the MLF interest rate unchanged. The yuan eases after the recent rebound (USD/CNY 6.89 area). USD/JPY is losing a few ticks (109.90/95 area) as most Asian equity indices are falling prey to modest profit taking. EUR/USD gains marginal ground on overall USD softness. Later today, the US PPI is interesting, but a big surprise is probably needed to affect trading as the CPI was already published yesterday. The Empire Manufacturing is expected little changed at 3.6. Global FX trading will probably sentiment driven as markets will tried to find out some more details on the US-China trade deal. A cautious risk-off and lower core/US yields might be a tentative negative for the dollar. Last week, EUR/USD dropped temporarily below 1.11, but 1.1066 support survived on soft payrolls. EUR/USD 1.1066 remains our first downside reference. A rebound above 1.1180 would call off the downside alert. Still, a ST break beyond 1.1250 looks far from easy. Sterling initially felt further selling pressure yesterday as recent soft BOE comments fuelled investor rate cut anticipation. EUR/GBP tested the 0.86 big figure but reversed the gain later. A sustained break of the post-election didn’t occur. Today, the UK December price data might have more market impact than is usually the case as the BoE rate debate intensifies. Core CPI is expected at 1.7% Y/Y. A downward surprise might have some more impact on sterling than a positive one.

Currencies

R2 1.1265 -1dR1 1.1199EUR/USD 1.1128 -0.0006S1 1.1000S2 1.0879

R2 0.8798 -1dR1 0.8676EUR/GBP 0.8548 -0.0025S1 0.8275S2 0.8117

Wednesday, 15 January 2020

P. 4

Wednesday, 15 January Consensus Previous US 13:00 MBA Mortgage Applications -- 13.50% 14:30 PPI Final Demand MoM/YoY (Dec) 0.20%/1.30% 0.00%/1.10% 14:30 PPI Ex Food and Energy MoM/YoY (Dec) 0.20%/1.30% -0.20%/1.30% 14:30 PPI Ex Food, Energy, Trade MoM/YoY (Dec) 0.20%/-- 0.00%/1.30% 14:30 Empire Manufacturing (Jan) 3.6 3.5 Japan 00:50 Money Stock M3 YoY (Dec) 2.70%A 2.20%R 07:00 Machine Tool Orders YoY (Dec P) -- -37.90% UK 10:30 CPIH YoY (Dec) 1.60% 1.50% 10:30 CPI MoM/YoY (Dec) 0.20%/1.50% 0.20%/1.50% 10:30 CPI Core YoY (Dec) 1.70% 1.70% 10:30 RPI MoM/YoY (Dec) 0.40%/2.30% 0.20%/2.20% 10:30 RPI Ex Mort Int.Payments (YoY) (Dec) 2.10% 2.30% 10:30 PPI Input NSA MoM/YoY (Dec) 0.20%/-0.90% -0.30%/-2.70% 10:30 PPI Output NSA MoM/YoY (Dec) 0.10%/1.00% -0.20%/0.50% 10:30 PPI Output Core NSA MoM/YoY (Dec) 0.00%/1.00% -0.10%/1.10% 10:30 House Price Index YoY (Nov) 1.00% 0.70% EMU 11:00 Industrial Production SA MoM/WDA YoY (Nov) 0.30%/-1.00% -0.50%/-2.20% 11:00 Trade Balance SA (Nov) 22.0b 24.5b Sweden 09:30 CPI MoM/YoY (Dec) 0.40%/1.80% 0.10%/1.80% 09:30 CPIF MoM/Yoy (Dec) 0.50%/1.70% 0.10%/1.70% 09:30 CPIF Excl. Energy MoM/YoY (Dec) 0.60%/1.80% 0.00%/1.80% Events Q4 earnings Bank of America (bef-mkt), BlackRock (bef-mkt), Goldman Sachs (13:30), Alcoa (aft-mkt) … 15JAN Belgium likely to Sell 10y Bonds 15JAN Italy likely to Sell 30y Bonds 15JAN US and China to sign the first phase of the trade deal in Washington 09:40 ECB's Holzmann Gives Speech in Vienna at Euromoney Conference 09:40 BOE's Saunders Speaks in Bangor, Northern Ireland 11:30 Germany to Sell 1.5 Billion Euros of 0% 2050 Bonds 16:30 ECB’s Villeroy speaks in Paris 17:00 Fed's Harker Speaks in New York 17:00 Fed’s Daly Speaks in San Ramon 18:00 Fed's Kaplan Speaks to the Economic Club of New York 20:00 U.S. Federal Reserve Releases Beige Book

Calendar

Wednesday, 15 January 2020

P. 5

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 1.81 -0.03 US 1.57 -0.01 DOW 28939.67 32.62DE -0.17 -0.01 DE -0.58 0.01 NASDAQ 9251.329 -22.60BE 0.06 -0.01 BE -0.57 0.00 NIKKEI 23916.58 -108.59UK 0.72 -0.03 UK 0.49 0.01 DAX 13456.49 4.97

JP 0.01 -0.01 JP -0.12 0.00 DJ euro-50 3774.88 -4.80

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y -0.25 1.61 0.72 Eonia -0.4520 0.00005y -0.13 1.63 0.78 Euribor-1 -0.4600 0.0000 Libor-1 1.6763 0.000010y 0.19 1.77 0.91 Euribor-3 -0.3910 -0.0020 Libor-3 1.8313 0.0000

Euribor-6 -0.3290 -0.0050 Libor-6 1.8725 0.0000

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

EUR/USD 1.1128 -0.0006 EUR/JPY 122.4 -0.02 CRB 183.64 0.63USD/JPY 109.99 0.04 EUR/GBP 0.8548 -0.0025 Gold 1544.60 -6.00GBP/USD 1.3019 0.0030 EUR/CHF 1.0765 -0.0043 Brent 64.49 0.29AUD/USD 0.6902 -0.0002 EUR/SEK 10.5316 -0.0075USD/CAD 1.3062 0.0005 EUR/NOK 9.8751 -0.0294

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