US 10-y Yield Should Find Support in December Correction Low (3.78%)

Markets

Yesterday’s eco calendar’s market moving potential didn’t fully materialize. Ranging from slightly higher-than-expected European (y/y) inflation over the BoE dropping its hawkish bias to the US’ sub-consensus unit labor costs & weekly jobless claims vs an unexpected improvement in the manufacturing ISM (with solid new orders and rising prices). Oil prices fell off a cliff (see below). But none of that really left a mark on markets. German yields whipsawed, resulting in changes between +2.9 bps (2-y) to -3.4 bps (30-y). Long end outperformance was also visible in the US market, where yields dropped up to 5 bps (30-y). Easing core bond yields helped recoup Wall Street some of the Fed-induced losses to the tune of 1-1.5%. The regional banking index in the wake of the New York Community Bancorp earnings shocker for a second day fell more than 6% intraday before cutting losses in half. It suggests ongoing nervousness and therefore deserves everyone’s attention still. The dollar slipped amid general risk-on. EUR/USD bounced of 1.0793 support to close at 1.0872. DXY dropped towards the 103 area and USD/JPY extended Wednesday decline to finish at 146.43. Sterling held up very well given the BoE’s shift to a stance more on par with the ECB and Fed, ie. giving markets the prospect of rate cuts (conditioned on inflation easing further). EUR/GBP jumped to an intraday high of 0.8558 after the decision but in the end eked out only a marginal gain to 0.8531.

From the overnight news flow we retain that Powell is appearing on CBS News’s 60 Minutes on Sunday. The Fed chair has been interviewed by America’s most-watched news magazine show before as a way to communicate monetary policy to the broader public. This time around, he’s showing up at a time the Fed is preparing for a rate pivot. Investors will be on high alert. Testament to an otherwise quiet session are the muted changes on both bond and currency markets. Brent oil stabilizes after yesterday’s whammy. Investors are probably keenly awaiting the release of the US payrolls report later today. There are several warnings for the January edition, however, with factors including weather (cold snap in January), re-benchmarking, season factors and (population) revisions making it tricky to draw firm conclusions. Either way, consensus expects a net job growth of 185k following the 216k in December, suggesting ongoing labour market resilience. The unemployment rate is seen rising to 3.8% but to the extent it is accompanied with the expected increase in the participation rate, this shouldn’t be seen as a worrying sign. Hourly earnings are anticipated at an average 0.3% m/m and 4.1% y/y. Despite the slew of statistical and technical warnings, we do believe markets will (mainly) react to a downward surprise. The US 10-y yield in such a case should find support in the December correction low (3.78%) though. Barring a huge miss, first resistance around EUR/USD 1.0945/1.096 is probably safe.

News & Views

Wards total vehicle sales declined from 15.83mn in December to 15mn in January (seasonally adjusted, annualized basis), the lowest level since March last year and way below 15.70mn consensus. Light vehicle sales are down 5.2% M/M and 4.7% Y/Y. In a separate report, Wards indicates that the combined sales of hybrid vehicles, plug-in hybrids and battery vehicles in the US rose from 12.9% of total sales in 2022 to 16.3% of total new light vehicle sales in 2023. The introduction of several more models, especially in the crossover and luxury segment, fiscal support and significant price cuts (especially Tesla) helped boost EV growth.

OPEC+ yesterday committed to their 900k barrel/day production cut for Q1 2024 (complemented by an additional 1mn barrel/day cut by Saudi Arabia), but sources suggest that these cuts our up to review when the cartel meets in March. Brent crude prices slid from $81.5/b to $79/b as yesterday’s talk was interpreted as the start of a return to additional supply. Such move would come as question marks are placed about global oil demand this year.