Sunset Market Commentary

Markets

Whether one should denominate today’s global price action as outright ‘risk-on’ might be subject to debate. Most major stock market indices are trading in green. The Eurostoxx 50 even adds 1% and is only a whisker away from an all-time record. US indices open with solid gains (S&P 500 +0.65%). Japan outperforms (Topix + 2.46%) as a coalition agreement between the LDP and the Japan Innovation Party (Ishin) is seen removing uncertainty and opening the door for a growth supportive policy. Contrary to last week, there are no new unsettling headlines on trade tensions between the US and China. Uncertainty on potential tensions in parts of the US credit market/regional banks also subsided. Even the surprise downgrade of the French credit rating by S&P (A+ from AA-) after the European close on Friday only caused limited repricing for OAT’s (10 spread vs swap widened from 77 bps on Friday to 79 bps today). No news currently apparently allows for some kind of glass half full feeling. However, this feeling has hardly any impact on core bond/interest rate markets. German yields today are changing less than 1 bp across the curve. US yields are easing between 0.5 bp (2-y) and -3 bps (30-y). In this respect, bonds easily maintain most of the recent gains. The US 10-y yield hovers near the psychological barrier of 4%. The 2-y yield still doesn’t really know which side of the 3.43%/3.50% support area to go (currently 3.46%). No additional guidance is to be expected from Fed-governors this week as they entered the back-out period in the run-up to next week’s policy decision. The US Bureau of Labour Statistics on Friday will make an exception to the ‘publication-shutdown’ of eco data and release the September US CPI data in order to allow the calculation of the annual Social security cost of living increase. Even so, markets currently don’t see an expected rise in headline CPI (3.1% from 2.9%) as derailing the intentions of a majority of Fed governors to ease policy restriction to accommodate a weakening labour market.

On FX markets, moves in most major cross rates are limited and some kind of erratic in nature. DXY holds in the mid 98 area (98.55). EUR/USD declines marginally (1.165), but stays firmly in the 1.155/1.192 trading range with little indication on a break either side. USD/JPY also holds near the 150 pivot (currently 150.65). Japanese yields in the 2-y/10-y sector jumped 4-5 bps as the coalition agreement between the LDP and Ishin was seen as a potential support to growth. At the same time, it also removed a factor of uncertainty for the BoJ. Hawkish BoJ member Takata reiterated his support for a rate hike. For now, the direct impact of the BoJ debate on the yen remains limited. Among the smaller currencies, the Swiss franc at EUR/CHF 0.9235 is again challenging historic top levels against the single currency (except for the early 2015 spike).

News & Views

Statistics Poland released a bunch of (secondary) data today. Produces prices fell by 0.2% M/M in September to be 1.2% lower in Y/Y-terms. Apart from July (+0.5% M/M), factory gate prices have been sliding M/M since December 2024. In annual terms, producer price inflation has been negative since July 2023. The biggest September drop was recorded in manufacturing (-0.3%). Average Polish gross wages and salaries were marginally lower in September (-0.2% M/M) to be up 7.5% Y/Y. Employment levels fell slightly, by 0.1% M/M and 0.8% Y/Y. Last but not least, industrial production recovered significantly after the holiday period with the higher number of working days than in August helping as well. Industrial output surged by 16% M/M and 7.4% Y/Y. In the period January-September of 2025, sold production was 2.7% higher than in the corresponding period of 2024 (which saw an increase by 0.2%). The Polish zloty trades with a slight positive bias in today’s positive risk climate with EUR/PLN testing the downside its extremely narrow sideways trading range at 4.24.

New Zealand inflation accelerated from 0.5% Q/Q in Q2 to 1% in Q3 (vs 0.9% expected). Annual inflation rose from 2.7% to 3%, the highest level since Q2 2024. The largest contributors to annual inflation were all in the housing and housing utilities group with electricity (+11.3% Y/Y), rent (+2.6% Y/Y) and local authority rates and payments (+8.8% Y/Y). They make up 17% of the CPI basket. NZ money markets still discount a 25 bps rate cut at the November meeting, but the probability of more action afterwards fell towards just over 50% after the sticky CPI release. NZD swap rate rose by 2 to 3.5 bps across the curve. The kiwi dollar failed to profit, holding just above the recent lows at NZD/USD 0.57.