Sunset Market Commentary

Markets

A cautious risk sentiment still dominated (equity) trading today. Macro data probably won’t be a major factor in deciding whether this move has to continue or how far it should go. Still some of today’s data are worth mentioning. Final EMU PMI’s almost by definition are no market movers. Even so, the headline composite PMI improved an already better than expected preliminary release. At 52.5, the index indicates the fastest pace of EMU growth since May 2023, driven by an acceleration in services activity. The report even assesses a ‘breakout from the generally subdued growth trend seen throughout 2025 so far’. On a country level solid data were registered for Spain (56, 10-month high), Germany 53.9 (29-month high) and Italy (53.1, 19-month high). The figure still was dragged down by a poor performance of France (47.7, 8-month low, but less worse than the preliminary reading of 46.8). Even as HCOB comments that ‘keeping up this relatively strong growth momentum in the services sector over the coming months won’t be easy’, PMI’s confirm that he ECB is indeed in a good place to keep its wait-and-see stance well into next year. At the same time, the ECB negotiated wage tracker suggests modest wage growth for next year (2.2% for the headline indicator in Q3 2026). A risk-off correction as such isn’t a direct trigger for a central bank to ease policy and given recent data this a fortiori applies for current ECB stance. In this context EMU yields yesterday and today decline only marginally despite the risk-off. German yields today are changing less than 1 bp. A similar story for US bond markets. After last week’s hawkish Fed cut, US yields in yesterday’s risk sell-off declined less than 3 bps. Today, yields initially declined marginally further, but a slightly stronger than expected ADP private job report (October job growth of 42k from -29k in Sept. and +30k expected) even was enough to push yields into positive territory (2-y +4 bp; 30-y +5 bpn). The US Treasury also published its quarterly refunding statement, keeping auction seizes unchanged. At time the finishing this report, a solid services ISM (52.4 from 50) support the intraday rebound in yields. Returning to risk sentiment, equity markets show some hesitancy (EuroStoxx 50 +0.15%; Nasdaq regains 0.5%). At least there is no aggressive follow-through selling on yesterday’s setback.

On FX, the US dollar, after recent risk driven gains, shifts into a lower gear but the DXY trade-weighted index is still testing the 100.26 early August top. The yen slightly underperforms (USD/JPY 153.95). EUR/USD trades little changed near 1.148. Sterling maintains recent losses going into tomorrow’s BoE policy decision. EUR/GBP broke the 0.877

News & Views

The Riksbank kept its policy rate unchanged at 1.75% today. It said the outlook for inflation and economic activity remains largely unchanged. Prices are still rising at a speed (between 2.7-3.1% depending on the gauge) faster than the central bank’s 2% target but the deceleration has been in line with the September forecast. That strengthens the Riksbank’s view that elevated inflation is transitory. Economic growth meanwhile has come in somewhat stronger than expected and the labour market, though still weak, is showing signs that a turnaround is on its way. The central bank assumes the current policy rate level to remain there for some time to come, in line with the September communication. The krona traded little changed on today’s decision. With EUR/SEK hovering around 11.01, the Swedish currency is about the same level as it was in September and therefore much stronger compared with the beginning of the year. The central bank anticipates some further strengthening going forward and said this too would contribute to dampening inflation.

Czech CPI rose a faster-than-expected 0.5% m/m last month. Core gauges all increased between 0.4% and 0.6% and food prices rallied 1.1%. Annual figures picked up from September as well with the headline number coming in at 2.5%. Underlying series printed well north of 3%, creeping further north of the central bank’s 2% +/-1 ppt target range. Energy prices dropped 0.2% m/m and 3.3% y/y but goods inflation quickened sharply, by 0.7% to 1.3% y/y (from 0.8%). Still-elevated services inflation (0.4% m/m, 4.6% y/y) is one of the key reasons for the ongoing cautious stance by the Czech National Bank. The inflation numbers come on the heels of last week’s much stronger than expected Q3 growth and cement the CNB’s rates status quo at 3.5%. The central bank meets tomorrow. EUR/CZK hovers near 24.37, with the pair trading a tight trading range for the last two months between 24.2 & 24.4.