Wednesday, 01 April 2020

P. 1

Rates: ADP and manufacturing ISM first important US eco releases

German Bunds traded remarkably stable yesterday with US Treausries slightly outperforming on Fed action and equity weakness. We might have entered some vacuum where monetary/fiscal stimulus currently hangs in the balance with the feared hit on the economy. US ADP employment and manufacturing ISM kick off this week’s key US eco numbers.

Currencies: USD correction to slow after quarter-end USD preference?

Yesterday, the dollar remained in favour for most of the day as investors preferred a cautious positioning at the end of the quarter. However, most USD cross rates (including EUR/USD) didn’t break important technical resistance (support). Will additional Fed measures to provide US liquidity ease the USD bid? USD data are a wildcard.

Calendar

• US stocks fell in a choppy trading session and capped Wall Street’s worst quarter

since 2008. The DJ underperformed (-1.84%). Asian markets trade mixed under pressure from grim coronavirus figures in the US. Japan underperforms (-4.5%).

• US president Trump warned Americans for “very, very painful two weeks” and extended coronavirus guidelines after the White House estimated the death toll from the coronavirus could reach 240 000, even with mitigation efforts.

• Trump called for a new big and bold $2tn infrastructure bill that would boost jobs as the next move to combat the widespread coronacrisis. Trump reportedly also mulls a 90-day suspension of tariff payments on certain imports.

• China’s Caixin's manufacturing PMI surged back into expansion territory in March (50.1 from 40.3), echoing yesterday’s official PMI. Japan’s Tankan index for big manufacturers dropped from 0 to -8 in Q1, a level unseen since 2013.

• President Trump is breeding cautious hopes in a possible way out of the damaging stand-off between Russia and Saudi Arabia as he discussed the oil slump with the countries and may join them in talks to resolve their price war.

• The Czech government is chewing over a loan-repayment freeze for 3 to 6 months to soften the blow from the coronacrisis to households and businesses and also considers holding off interest payments except for corporate loans.

• Today’s economic calendar contains US ADP job report and manufacturing ISM which will show the initial impact of the corona pandemic blow. February’s unemployment figures are due in Europe. Germany & Portugal tap the market.

Headlines

S&PEurostoxx 50NikkeiOilCRB

Gold2 yr US10 yr US

2yr DE10 yr DEEUR/USDUSD/JPYEUR/GBP

Wednesday, 01 April 2020

P. 2

ADP and manufacturing ISM kick off batch of key data

The trading range in the German Bund yesterday was probably the narrowest since the international coronavirus outbreak. It shows that markets might have reached some vacuum and are now willing to see whether the fiscal and monetary stimulus outweigh the economic impact from extended lockdowns. The contract ended the day virtually status quo. US Treasuries outperformed towards the end of the session as US stock markets lost momentum and eventually ended 1% to 2% lower. The Fed’s introduction of a new repo facility with other central banks could have added to the outperformance as well. By offering USD liquidity against the exchange of US Treasuries, they want to further address USD scarcity (especially off shore) while avoiding fire sales. March US eco data (Chicago PMI & Consumer confidence) deteriorated, but the biggest hit is probably yet to come. Changes on the US yield curve eventually ranged between +1.8 bps (2-yr) and -5.9 bps (10-yr) with the belly of the curve outperforming the wings. The German yield curve bear steepened with yields rising by 1.4 bps (2-yr) to 3.4 bps (30-yr). 10-yr yield spread changes vs Germany widened by up to 5 bps with Portugal (+11 bps) underperforming after announcing the near term syndication of a new 7-yr PGB. The Kingdom of Belgium yesterday raised €8bn at a similar tenor (Oct2027).

Most Asian stock markets are downwardly oriented this morning. Japan underperforms (-4.5%). US President Trump warned that the US death toll could reach up to 240k, overbidding this weekend’s most aggressive prognosis by his top corona advisor (200k). Brent crude returns below $26/b even if Trump says he’ll broker a meeting between top oil producers to stem the historic crash by reducing production again. Core bonds trade with an upward bias.

Today’s eco calendar contains March US ADP employment and manufacturing ISM. Consensus expects 150k jobs to have been already shed. We fear they won’t completely capture the picture yet. The manufacturing ISM is expect to return below the 50 boom/bust mark, where it spend most of the second half of last year. We expect an underperformance of US eco data compared to Europe in coming weeks/months. US Treasuries could outperform German Bunds.

From a technical point of view, the German 10-yr yield lost intermediate support at -0.43% last Friday, implying a return to the lower half of the trading band. For US yields, the Fed’s unlimited QE announcement is the de facto start of curve control probably reducing volatility. That implies that the mid-March Treasury sell-off in times of stress is less likely to see a repeat.

Rates

US yield -1d2 0.25 0.025 0.34 -0.0310 0.67 -0.0630 1.29 -0.02

DE yield -1d2 -0.69 -0.015 -0.65 0.0110 -0.47 0.0230 0.03 0.03

Af

German 10-yr yield: return to lower half of sideways trading band. US 10-yr yield: unlimited QE by the Fed de facto start of curve control?

Wednesday, 01 April 2020

P. 3

EUR/USD: end-of-quarter preference for USD liquidity to subside. USD

didn’t regain important technical resistance.

EUR/GBP: sterling remains well bid after drop below 0.90 support area. Sterling bid to slow?

How important are US eco data for the dollar? Yesterday, end of month position management was an important driver for trading in global FX. After accumulation USD during the period of global markets stress, economic agents erred to the cautious side on holding this US liquidity. The Fed announcing a new repo facility with other CBs to support USD liquidity outside the US initially had only a modest impact on intraday USD positioning. Still, later the USD rebound eased, even as sentiment was risk-off. The trade-weighted dollar (DXY) even closed marginally lower (99.04) and so did USD/JPY (close 107.54). EUR/USD also reversed an intraday decline to close at 1.1031. This morning, the China Caixin PMI showed a similar rebound as the official measure yesterday. The BoJ Tankan confidence report showed the expected sharp decline. Whatever the data, risk sentiment remains rather fragile this morning, preventing a further decline of the dollar. The yuan is trading rather stable at 7.0890. USD/JPY is little changed. Idem for EUR/USD (1.1030 area). The Aussie dollar shows tentative signs of its recent rebound running into resistance (AUD/USD 0.9125 area). Risk sentiment and the preference/availability of USD liquidity remain important drivers for USD trading. We look out whether the prospect of a new Fed window will ease ‘USD stress’ outside the US. Eco data are difficult to interpret these days. Still we keep an eye on the US ISM and the US labour market data (ADP and claims). Will negative US labour market data be a negative for the dollar? On the euro side of the story, markets still look for some kind of coordinated EU ‘fiscal’ initiative. Of late, we assumed the aggressive run to the USD might slow and that maybe the dollar could enter a cautious sell-on-upticks pattern. The USD was well bid earlier this week, but didn’t regain key technical levels. We keep our cautious sell USD on uptick bias as long as the EUR/USD 1.09 support area holds. EUR/USD 1.1237/50 is a next topside reference. Yesterday, the sterling outperformance initially continued with EUR/GBP closing below 0.89. Today, the final UK manufacturing PMI probably will only have limited impact on trading. We are a bit puzzled on this week’s outperformance of sterling. The drop below EUR/GBP 0.90 was a euro negative/sterling positive. Still, we remain cautious to join this sterling rebound as the UK is no font-runner in the management of the corona-cycle.

Currencies

R2 1.125 -1dR1 1.1109EUR/USD 1.1031 -0.0017S1 1.1000S2 1.0879

R2 0.9415 -1dR1 0.9325EUR/GBP 0.8882 -0.0016S1 0.8786S2 0.86

Wednesday, 01 April 2020

P. 4

Wednesday, 1 April Consensus Previous US Wards Total Vehicle Sales (Mar) 12.00m 16.83m 13:00 MBA Mortgage Applications -- -29.40% 14:15 ADP Employment Change (Mar) -150k 183k 16:00 Construction Spending MoM (Feb) 0.60% 1.80% 16:00 ISM Manufacturing (Mar) 44.5 50.1 16:00 ISM New Orders (Mar) -- 49.8 16:00 ISM Prices Paid (Mar) 41.6 45.9 16:00 ISM Employment (Mar) -- 46.9 Canada 15:30 Markit Canada Manufacturing PMI (Mar) -- 51.8 Japan 01:50 Loans & Discounts Corp YoY (Feb) 2.36%A 2.20% 01:50 Tankan Large Mfg/Non-Mfg Index (1Q) -8A/8A 0/20 01:50 Tankan Large Mfg/Non-Mfg Outlook (1Q) -11A/-1A 0/18 01:50 Tankan Large All Industry Capex (1Q) 1.80%A 6.80% UK 01:01 BRC Shop Price Index YoY (Mar) -0.80%A -0.60% EMU 10:00 Markit Eurozone Manufacturing PMI (Mar F) 44.6 44.8 11:00 Unemployment Rate (Feb) 7.40% 7.40% Italy 09:45 Markit Italy Manufacturing PMI (Mar) 41 48.7 10:00 Unemployment Rate (Feb P) 10.0% 9.80% Belgium 11:00 Unemployment Rate (Feb) -- 5.30% China 03:45 Caixin China PMI Mfg (Mar) 50.1A 40.3 Norway 10:00 DNB/NIMA PMI Manufacturing (Mar) -- 52.2 Spain 09:15 Markit Spain Manufacturing PMI (Mar) 44 50.4 Sweden 08:30 Swedbank/Silf PMI Manufacturing (Mar) 46.5 53.2 Events 01APR OPEC+ output curb agreement ends 11:30 Germany to Sell EUR 4 Bln of 0% 2025 Bonds 20:00 Fed’s Rosengren Gives Virtual Talk to Boston Chamber of Commerce

Calendar

Wednesday, 01 April 2020

P. 5

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 0.67 -0.06 US 0.25 0.02 DOW 21917.16 -410.32DE -0.47 0.02 DE -0.69 -0.01 NASDAQ 7700.098 -74.05BE 0.06 0.04 BE -0.46 0.04 NIKKEI 18065.41 -851.60UK 0.36 0.02 UK 0.14 0.00 DAX 9935.84 119.87

JP 0.01 -0.02 JP -0.14 0.00 DJ euro-50 2786.9 21.28

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y -0.31 0.46 0.49 Eonia -0.4430 0.00005y -0.23 0.52 0.53 Euribor-1 -0.4230 0.0130 Libor-1 0.9845 0.000010y -0.02 0.72 0.59 Euribor-3 -0.3630 -0.0100 Libor-3 1.4334 0.0000

Euribor-6 -0.2870 -0.0070 Libor-6 1.0918 0.0000

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

EUR/USD 1.1031 -0.0017 EUR/JPY 118.64 -0.46 CRB 121.79 0.10USD/JPY 107.54 -0.22 EUR/GBP 0.8882 -0.0016 Gold 1596.60 -46.60GBP/USD 1.242 0.0006 EUR/CHF 1.0604 0.0017 Brent 26.35 -0.07AUD/USD 0.6131 -0.0043 EUR/SEK 10.9286 -0.1567USD/CAD 1.4062 -0.0104 EUR/NOK 11.483 -0.1730

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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

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