All set for bullish German IFO – redoubling cross-the-board selloff for fixed income

All set for bullish German IFO – redoubling cross-the-board selloff for fixed income

Alan Plaugmann and Torben Krogh Nielsen look for a robust German IFO to confirm European outstripping of US economy – and that’s bad news for bond markets



Futures strategist Alan Plaugmann comments on the outlook for global bond markets ahead of tomorrow’s German IFO figure. \"The outlook for fixed income generally is quite bearish at the moment – I don’t think there is a fixed income product out there that hasn’t sold off over the past 24 hours, strictly on rate outlook, which is bullish across the board. From a trading standpoint, it’s simply a question of the degree of the bullishness of the rate outlook, and on this score we would argue that it’s in Europe. After a robust German ZEW, all the ducks are lined up for an equally positive German IFO reading tomorrow. A strong indicator here is a quirky little figure - Belgian consumer confidence - which isn’t a major release in its own right but is a very strongly correlative predictor of IFO, and which was out today in line with expectations, very strong indeed. The upshot is more downside in bunds, and we are looking at a target of 111.86 if IFO comes out positive.\"

Plaugmann adds that no great surprises are expected in today’s weekly crude oil inventory numbers, but notes that the IAEA’s report on Iran’s uranium compliance could provide a bit of upward geopolitical price pressure on crude and gold.


Equity strategist Torben Krogh Nielsen looks for tomorrow’s German IFO to prolong the rally in European stocks. \"Sector-wise, the only weak link in the bull rally is property-related, where a mean reversion bounce before continued moves lower is a nice opportunity to enter new lows. The stage is fairly set for IFO to dazzle the market tomorrow, providing additional proof that the European economy is indeed running on all cylinders while the US is topping out, cyclically speaking. Looking at index levels, DAX is up 16% on the year, the CAC40 is up 10%, OMX is up substantially, and EUR/USD has gone higher, so the European investor has currency appreciation going for them as well.\"

FX strategist Johan Ditz Lemche expects sterling crosses to continue on their current tear after today’s BoE minutes signaled a strong possibility of continued rate hikes out of the UK. In other currency related minutiae, NZD/USD is approaching breakdown levels, and Ditz Lemche is eyeing the 55-day moving average in the pair to open up for more downside. Look for tonight’s New Zealand trade balance figures to indicate a clear end to the kiwi rate hike cycle, and send NZD/USD definitively below key support.