Markets
UK gilts rally, outperforming their US and European peers dramatically in the process. British yields drop between 8.1 and 8.9 bps after sub-consensus inflation numbers. September headline CPI flatlined on a monthly basis and caused the annual print to match August’s 3.8%. The Bank of England for the last couple of months had been warning for inflation to peak last month at 4% before disinflation would kick in again. The current 3.8% in other words means a better starting point. Core inflation unexpectedly eased to 3.5% from 3.6% and services CPI defied expectations for an acceleration to 4.8% by coming in at 4.7%, the same as in August. Producer price inflation gauges also came in below analyst estimates. The price report is a sigh of relief, including for the Bank of England. The central bank is torn between supporting the economy through rate cuts and stubborn above-target inflation. Since it last cut rates back in August the BoE started floating the possibility of going even slower than the quarterly pace it followed until then. Markets dramatically reduced bets for a November 6 reduction to near zero in response. That’s now going in reverse: the market implied probability shot higher to 35% currently. Governor Bailey will be the swing vote in a split MPC. The sharp yield drop is a boon for UK’s dire public finances too. Depending on the cut-off used by the Office of Budget Responsibility in drafting the pre-Autumn Budget forecast, estimates (Bloomberg) of borrowing cost savings vary between £2 and £4.5bn. When looking for money to fill a £35bn fiscal hole, every bit counts. Cratering yields weigh on GBP but it could have been a lot worse. EUR/GBP bounced to 0.871 before halving those gains. The euro himself isn’t exactly showcasing strength. EUR/USD drifts further south with the 1.16 big figure again at risk of being lost. The US dollar remains the better bid currency against most major peers. DXY is back above 99. Precious metals remain in the defensive. Gold and silver’s pullback continues, extending yesterday’s slide. Stock markets are taking a breather near the record highs. Decent-to-strong corporate earnings have supported the recent upleg. Markets are now eyeballing the next batch from bellwethers such as Tesla & Alcoa (after-market).
News & Views
The monthly consumer confidence report published by the National Bank of Belgium today, showed the overall confidence level continuing its upward trajectory. At 0 (up from -1) the index reached the best level for 2025. The move was mainly due to a sharp decline in consumers’ fears about unemployment. The subindex improved from 2 to -6, the best level since January 2018. The improved in expectations on unemployment offset greater pessimism concentrating the economic situation in the country (-27 from -23). On a personal level, households have slightly downgraded their expectations regarding their own financial situation (-2 from 0) and they intend to save a little more 23 from 22).
Consumer price inflation in South Africa in September rose slightly by 0.2% M/M and 3.4% Y/Y (from -0.1% and 3.3% in August). Core inflation (excluding food & non-alcoholic beverages, fuel and energy) also rose 0.3% M/M and 3.2% Y/Y (from 0.1% M/M and 3.1% Y/Y). Goods inflation eased from 3.1% Y/Y to 2.9%, but services inflation accelerated from 3.6% to 3.9%. In its September monetary policy statement, the South Africa Reserve Bank (SARB) indicated that it expected the inflation rate to rise to 4% over the next few months. Overall, it expected headline inflation to average 3.4% this year, and 3.6% next year, before reverting to 3% during 2027. In its assessment it saw higher electricity prices as well has upwardly revised food and services prices. This was partially offset by a stronger exchange rate assumption. In September, the SARB paused its easing cycle, leaving the policy rate at 7% as it wanted to see the impact of the previous 125 bps of rate cuts over the previous year. As the SARB aims to bring inflation to the bottom of the 3-6% official target range, current inflation development only leaves room for very gradual policy easing going forward. The rand today eases modestly to USD/ZAR 17.425. The USD/ZAR cross rate earlier this month touched 17.07, coming close to the 2024 low (high for the rand).
