Markets
EUR/USD’s technical break outside the upward sloping trend channel since US Liberation day met with follow-up action yesterday. News that French President Macron will name a new PM tonight didn’t stop the pair from sliding from a start at 1.1629 to a close at 1.1564. Markets have little confidence that the next, technocrat, PM will be able to steer next year’s budget through parliament without having to face motions of no confidence which whatever the government looks like, it is likely to lose. A modest risk correction (up to 0.5% for key European and US benchmark indices), simultaneously played in the advantage of the dollar. We eye a further decline, in first instance to 1.1392 support. The trade-weighted greenback accelerated his ascent since the start of the month, with the best close (99.56) since the end of July. First support (upper bound sideways trading channel) is coming close at DXY 100.26. The greenback enjoys life without eco releases, though the BLS yesterday announced that it would recall some furloughed workers in order to get the September CPI report ready by the end of the month. Apart from that, there’s still little rush in US Congress to end the government shutdown which started early this month. The US Treasury concluded its mid-month refinancing operation with a solid $22bn 30-yr Bond auction which didn’t leave trace on markets. USD/JPY closed (153.07) at the highest level since mid-February with JPY still feeling some pain from the outcome of LDP-leadership elections. Newly-elected leader Takaichi yesterday tried to stem worries about Abenomics 2.0 by saying that shed doesn’t intent to trigger excessive JPY-weakness and that there’s no immediate need to revise the BoJ-government accord. We stick with our call that Japanese money markets went too far in pricing out a rate hike (0.50% to 0.75%) at the end of October BoJ policy meeting.
Asian stock markets remain in correction mode this morning. Apart from the French PM nomination, we keep a close eye on Moody’s rating review of Belgium’s Aa3 credit rating (negative outlook). Recall that Fitch cut the Belgian rating in June from AA- to A+, a first ever drop into single A category, as budgets concerns linger. In light with the French political/budgetary crisis and given limit progress in sustainable tackling outsized budget deficits, there’s a risk of another rating downgrade. University of Michigan consumer confidence (October) is one of the sole US data points we get these week.
News & Views
In his press conference commenting on the National Bank of Poland’s policy decision (NBP), governor Glapinski kept the door open for further easing. The NBP on Wednesday cut the policy rate by 25 bps to 4.5%, a move that was only expected by part of the market/analysts. The governor said that “there is not a lot of room, but there is some” for further erasing. Glapinski indicated that the central bank favours to the cut the policy rate by steps of 25 bps and that it isn’t targeting any specific terminal rate for the cycle. Even so, he suggested that the policy rate can be lowered to 4% if inflation remains at current levels. The NBP sees inflation holding near 3% in Q4, a level the governor indicates as being satisfactory, but core inflation remains sticky above 3%. A slowdown in wage growth supports the case for further easing. On the other hand, the NBP mentions (a too stimulative) fiscal policy as a risk to stability and limiting the scope for policy easing. Even as the tone of the press conference was rather dovish, the zloty again hardly reacted. EUR/PLN is still locked in a tight range near 4.25.
A monthly survey of the UK Recruitment and Employment Confederation (REC) and KPMG showed a further decline of recruitment of permanent staff in the UK at the end of the third quarter, but the pace of the decline slowed. The survey still sees low employer confidence and casts concerns weighing in staff hiring. Vacancies data still highlight a marked drop in demand for staff that was similar to that seen in August. The sustained fall in hiring and reports of redundancies drove a further rapid increase in candidate numbers for both permanent and temporary positions. The shift in demand and supply for workers placed downward pressure on pay, with both permanent salaries and temp pay rates up only marginally.
