Tuesday, 21 April 2020

P. 1

Rates: WTI crude falls to -$40/barrel!

WTI crude prices for delivery next month tumbled into negative territory in the final stages of US trading, hurting risk sentiment and triggering an outperformance of US Treasuries. We still prefer to err on the side of caution as the economic/corporate damage of the lockdown recession unravels.

Currencies: Dollar profits only modestly from return of risk-off

Yesterday, the dollar remained well bid, but gains could have been bigger considering the deterioration in global sentiment. This morning, the yen even slightly outperforms the dollar. Is the Japanese currency regaining some of its safe haven appeal? We keep a close eye at the EUR/JPY cross rate nearing the key 116 support area.

Calendar

• US equities tumbled, led by energy stocks amid a historic selloff in the oil

market. The Dow Jones underperformed (-2.44 %). Asian markets followed Wall Street lower with India (-2.5%) leading the losses.

• US crude oil futures crashed deep into negative territory for the first time in history, touching -$40.32 as traders dumped expiring May contracts amid evaporating demand and an overwhelmed storage capacity.

• The Trump administration and Congress trudged toward a $450bn stimulus package to boost the small-business loan program that ran out of money and add funds for hospitals and COVID-19 testing.

• US president Trump announced he will suspend all immigration into the US to stem the spread of the coronavirus and safeguard jobs while some southern states (e.g. Texas and Florida) are already relaxing some lockdown measures.

• US president Trump said the country may put as much as 75mln barrels into the national reserves and considers halting incoming Saudi Arabian crude oil shipments to support the battered domestic drilling industry.

• RBNZ governor Adrian Orr announced the central bank is assessing the need for additional stimulus with QE a preferred tool over negative interest rates. Orr also shared the RBNZ is open to direct monetization of government debt.

• In today’s economic calendar the German ZEW indicator will be gauged. Investors await the outcome of the EU summit kicking off thursday on how to fight the coronacrisis. Germany, Italy and the UK tap the bond market.

Headlines

S&PEurostoxx 50NikkeiOilCRB

Gold2 yr US10 yr US

2yr DE10 yr DEEUR/USDUSD/JPYEUR/GBP

Tuesday, 21 April 2020

P. 2

WTI crude oil prices turns negative

Core bond trading was confined to well-known boundaries for most of yesterday’s European and US trading hours. A late plummet in oil prices sent WTI crude prices for delivery next month into negative territory. Traded volumes were light, but the current oil oversupply and lack of demand creates a problem of storage capacity. Risk sentiment took a hit (US equity indices -2%) and provided safe haven flows into core bonds. US Treasuries outperformed German Bunds. The US yield curve bull flattened with yields declining by 0.1 bp (2-yr) to 4.5 bps (30-yr). German yields added 2.1 bps (2-yr) to 2.9 bps (30-yr) across the curve. 10-yr yield spread changes vs Germany widened by 3 bps to 6 bps with Greece (+10 bps) and Italy (+12 bps) underperforming in the run-up to Thursday’s EU Summit. Italian PM Conte warned for the risk of market contagion (and the existence of the euro zone) if EU leaders would fail to come up with a debt mutualization proposal.

Asian stock markets lose up to 2.5% this morning. Core bonds have an upward bias. The WTI crude oil contract (first delivery) for May has its final trading day. The June 2020 contract stabilizes around $21/barrel. The oil sector nevertheless remains something to follow up with the US (shale) business facing huge (debt) problems and talk about a bailout intensifying.

Today’s eco calendar contains German April ZEW investor confidence. Its close correlation with the Dax suggests that we might see some rebound. We fear that markets won’t be impressed though. Q1 earnings continue with amongst others Coca-Cola and Netflix. It could influence risk sentiment, though most companies will probably delay full year guidance because of the current high level of uncertainty. Other highlights this week are EMU PMIs and the European Council, both on Thursday. Europe remains hugely divided on the topic of debt mutualization to provide (fiscal) aid to tackle the current crisis. The European Commission’s EU budget could serve as flair to divert attention, but will have much less of an impact. We advise against joining the Easter risk momentum as we haven’t turned the corner in the coronacrisis yet. Stress on a corporate level could be the next domino.

From a technical point of view, the German 10-yr yield is trying to find a fresh equilibrium. For US yields, the Fed’s unlimited QE announcement is the de facto start of curve control probably reducing volatility. A trading range between 0.5% and 1% could open up.

Rates

US yield -1d2 0.20 0.005 0.35 -0.0210 0.61 -0.0430 1.21 -0.04

DE yield -1d2 -0.67 0.015 -0.63 0.0310 -0.45 0.0230 -0.03 0.03

Af

German 10-yr yield: trying to find fresh equilibrium. US 10-yr yield: unlimited QE by the Fed de facto start of curve control?

Tuesday, 21 April 2020

P. 3

USD (Trade-weighted-DXY): dollar drifting north of 100, but gain could have been bigger given the global risk-off.

EUR/JPY nearing key support. Is the yen regaining some of its safe haven appeal ?

EUR/JPY nearing key support! Yesterday, the trade-weighted dollar (DXY) several times tested the 100 mark, but a sustained break didn’t occur (at that time). Dollar bulls maybe should be a bit disappointed as the global mood was far less optimistic than last week, with the unprecedented decline of the (US) oil price an illustration of how the pandemic is unravelling parts the economic (and financial) infrastructure via several channels. Of late, bad news, even as it came from the US, mostly supported the dollar, but yesterday USD gains stayed modest. We don’t see it a real change in the FX reaction function yet, but keep an eye on it. EUR/USD closed slightly lower at 1.0862. USD/JPY also closed marginally higher at 107.62 This morning, the risk-off correction is further spreading into Asian markets. Uncertainty on the health of North Korean leader Kim Kong UN is an additional source of (regional) uncertainty. The trade-weighted dollar finally regained the 100 mark (currently 110.10 area).The Korean won underperforms. The yuan is also losing ground, but only modestly (USD/CNY 7.0850). Interesting, the yen gains against the US dollar and EUR/JPY is nearing the key 116 support area. Today’s eco is modestly interesting. Investors will keep an eye on the ZEW investor confidence, but the PMIs and the German IFO business climate to be published later this week are more important. Global factors, including the developments in the oil market, will continue to drive global FX trading. EUR/USD remains vulnerable as investors await a potential compromise on an EU support package to be decided at a summit later this week. At the same time, we keep a close eye at the yen cross rates. EUR/JPY breaking below 116 could trigger further stop-loss selling both in EUR/JPY and USD/JPY. EUR/USD 1.0770 remains our first technical reference for EUR/USD. Yesterday, sterling underperformed the dollar and the euro. Last week, the EUR/GBP cross rate already showed tentative signs of bottoming in the 0.8700/0.8680 area. For now, it looks that the UK probably won’t be a frontrunner in the easing of the lockdown measures. This was illustrated by comments of BoE’s Broadbent indicated that the assumption of a 3-month lockdown was reasonable. With sentiment on risk further deteriorating this morning, EUR/GBP might continue drifting north in a daily perspective.

Currencies

R2 1.125 -1dR1 1.1109EUR/USD 1.0862 -0.0013S1 1.0778S2 1.0636

R2 0.9035 -1dR1 0.8748EUR/GBP 0.8734 0.0039S1 0.8569S2 0.8282

Tuesday, 21 April 2020

P. 4

Tuesday, 21 April Consensus Previous US 16:00 Existing Home Sales Total/MoM (Mar) 5.25m/-9.0% 5.77m/6.50% Japan 07:00 Supermarket Sales YoY (Mar) -- 4.10% UK 08:00 Claimant Count Rate (Mar) -- 3.50% 08:00 Jobless Claims Change (Mar) -- 17.3k 08:00 Average Weekly Earnings 3M/YoY (Feb) 3.00% 3.10% 08:00 Weekly Earnings ex Bonus 3M/YoY (Feb) 3.00% 3.10% 08:00 ILO Unemployment Rate 3Mths (Feb) 3.90% 3.90% 08:00 Employment Change 3M/3M (Feb) 100k 184k EMU 11:00 ZEW Survey Expectations (Apr) -- -49.5 Germany 11:00 ZEW Survey Expectations (Apr) -42 -49.5 11:00 ZEW Survey Current Situation (Apr) -77.5 -43.1 Belgium 11:00 Consumer Confidence Index (Apr) -- -9 Sweden 09:30 Unemployment Rate SA (Mar) 7.80% 7.60% Events Q1 earnings Coca-Cola (bef-mkt), Netflix (aft-mkt), Chipotle Mexican Grill (22:10) … 21APR Italy likely to issue new 5y dual tranche bond 11:30 Germany to Sell 5 Billion Euros of 0% 2022 Bonds 15:00 ECB's Stournaras speaks at an e-event by Delphi Economic Forum

Calendar

Tuesday, 21 April 2020

P. 5

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 0.61 -0.04 US 0.20 0.00 DOW 23650.44 -592.05DE -0.45 0.02 DE -0.67 0.01 NASDAQ 8560.729 -89.41BE 0.17 0.06 BE -0.40 0.05 NIKKEI 19280.78 -388.34UK 0.34 0.03 UK 0.10 0.01 DAX 10675.9 50.12

JP 0.02 0.00 JP -0.13 -0.01 DJ euro-50 2909.5 21.20

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y -0.26 0.40 0.46 Eonia -0.4530 0.00005y -0.22 0.46 0.49 Euribor-1 -0.4330 0.0010 Libor-1 0.6728 0.000010y -0.05 0.67 0.56 Euribor-3 -0.2460 -0.0030 Libor-3 1.1090 0.0000

Euribor-6 -0.1850 0.0100 Libor-6 1.1025 0.0000

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

EUR/USD 1.0862 -0.0013 EUR/JPY 116.91 -0.04 CRB 118.76 -5.03USD/JPY 107.62 0.08 EUR/GBP 0.8734 0.0039 Gold 1711.20 12.40GBP/USD 1.2442 -0.0057 EUR/CHF 1.0515 -0.0005 Brent 25.57 -2.51AUD/USD 0.6336 -0.0030 EUR/SEK 10.8876 0.0294USD/CAD 1.4149 0.0148 EUR/NOK 11.354 0.1217

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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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