Wednesday, 22 August 2018

P. 1

Markets

• Yesterday’s trading session resembled Monday’s in the sense that the sting was in the tail. Trump’s criticism on China, the EU and the Fed drew a lot of additional headlines during European trading hours, but failed to trigger follow-up action. EUR/USD entered a tough fight at the 1.1510 battle ground with other markets mainly thriving on an improved risk sentiment. German yields added up to 2.8 bps (belly of the curve) on a daily basis. Peripheral spreads narrowed by 13 bps for Greece and 5 bps for Portugal, Spain and Italy. The S&P 500 managed to record a minor new all-time high intraday. However, stock markets started slipping away and continue to do so overnight (US futures) as news broke that US President Trump’s former lawyer Cohen plead guilty to several charges including campaign-finance violations. He implicated president Trump in doing so. Former campaign manager Manafort was more or less simultaneously convicted of fraud in a win for Special Counselor Mueller’s investigation of Russian interference in the 2016 election. The mirror image of equity weakness are overnight gains for the US Note future. The dollar lost key technical levels with EUR/USD closing significantly above 1.1510 (1.1571) and the trade weighted dollar falling below the 95.50 handle (95.27 close). However, we must add that these technical breaks occurred two hours before the correlated trade on the stock and bond market, suggesting stand-alone events. USD/JPY bounced off 109.86 support in the morning and managed to hold upward momentum despite a brief dip in today’s early Asian trading which did match the post Cohen/Manafort risk aversion. Dallas Fed Kaplan’s (no voter) suggestion to hike rates another 3 to 4 times until they hit a neutral level fell in deaf man’s ears yesterday. EUR/GBP closed yesterday’s session almost unchanged at 0.8969 as brexit-talks between UK Brexit minister Raab and EU chief negotiator Barnier continue. More of the same will probably be on the UK cards today.

• Most Asian stock markets trade positive overnight (China underperforming) while USD/JPY’s rise and US Note future’s stabilization also suggest no lasting/additional impact from US President Trump’s legal blow for now. The eco calendar remains thin today with only FOMC Minutes which are expected to pave the way for a September Fed rate hike. The US and China start low-level trade talks. We hold a close eye on dollar markets after the greenback gave away key technical levels (conquered on August 10). A weekly close below levels mentioned above makes technical pictures neutral again. The German and US 10-yr yields bounced off key support levels at 0.3% and 2.8% respectively. This week’s eco calendar still contains EMU PMI’s (Thursday) and Powell’s speech (Friday).

News Headlines

• US President Trump had a bad day in court yesterday. His personal lawyer Michael Cohen pleaded guilty to charges of paying silence money to women who claimed affairs with the president. Paul Manafort, his ex-campaign manager, was convicted of tax evasion and bank fraud.

• Irish banks are offloading bad loans from the financial crisis. The move followed regulators increasing pressure on Irish banks to accelerate the repairing of balance sheets whom still are burdened by bad lending practices stemming from the crisis. The regulators fear elevated NPL rates present a risk to financial stability.

• EU’s chief negotiator, Michel Barnier had said the EU and the UK will negotiate on Brexit continuously from now on. He added the negotiations are entering the final stage, but it needs Britain to “respect the single market”. He wouldn’t commit to October as the long-planned deadline for a deal, making November a possibility.

• The US and Mexico are heading in the right direction with Nafta-talks. Key hurdles have yet to be taken, such as the ‘sunset clause’, but a consensus is said to be within reach. The US-Mexico talks are seen as an important precursor for a final three-way deal that also includes Canada on a revised Nafta-agreement.

KBC Sunrise Market Commentary

Wednesday, 22 August 2018

P. 2

Source: Bloomberg

Graphs & Table

US 10-yr yield remains above 2.8% support level

S&P 500 sets minor new all-time high before Trump’s legal blow delivers a setback

EUR/USD short squeeze extended, pushing the pair back above 1.1510 and making the technical picture more neutral again

Trade-weighted dollar falls back below 95.50 handle

Wednesday, 22 August 2018

P. 3

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 2,83 0,01 US 2,60 0,01 DOW 25822,29 63,60DE 0,33 0,03 DE -0,60 0,04 NASDAQ 7859,173 38,17BE 0,70 0,02 BE -0,51 0,02 NIKKEI 22349,91 130,18UK 1,27 0,04 UK 0,72 0,02 DAX 12384,49 53,19

JP 0,10 0,01 JP -0,12 0,00 DJ euro-50 3411,66 17,99

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y -0,02 2,84 1,18 Eonia -0,3630 -0,00205y 0,27 2,85 1,32 Euribor-1 -0,3710 -0,0020 Libor-1 2,0670 0,000010y 0,88 2,90 1,54 Euribor-3 -0,3190 0,0000 Libor-3 2,3096 0,0000

Euribor-6 -0,2660 0,0000 Libor-6 2,5086 0,0000

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

EUR/USD 1,1571 0,0089 EUR/JPY 127,62 1,24 CRB 190,01 0,89USD/JPY 110,31 0,24 EUR/GBP 0,8969 -0,0004 Gold 1200,00 5,40GBP/USD 1,2901 0,0103 EUR/CHF 1,1401 0,0018 Brent 72,63 0,42AUD/USD 0,7368 0,0028 EUR/SEK 10,5252 0,0147USD/CAD 1,3037 -0,0010 EUR/NOK 9,725 0,0280

Calendar

Wednesday, 22 August 2018

P. 4

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