Markets
- Brent crude returns below $90/b today for the first time in a week. The decline from $92/b comes after the New York Times reported that the US is preparing to send diplomats back to Middle East embassies, suggesting Washington does not anticipate a renewal of the conflict. European gas prices disconnected with crude prices recently, but today follow the correction lower. The Dutch TTF future tested 70/MWh two times this week but failed to push beyond that mark to hit highest levels since the end of 2022. An overreaching theme is yesterday’s “Economic D-Day”. Details of sanctions announced by US Treasury against Iran and its trading partners – “the greatest coordinated economic isolation in the history of the world” – didn’t look very different from tactics already in place. As such, they cause some buy-the-rumour, sell-the-fact return action today.
- Lower energy prices managed to bring some relief on the core bond market. The US Treasury curve bull flattens with yields 2.3 bps (2-yr) to 3.6 bps (30-yr) lower. The German yield curve bull steepens with yields giving up 1.7 bps (30-yr) to 3.9 bps (2-yr). UK Gilts outperform with the curve up to 5 bps down. EUR/USD (1.1665) is going nowhere with opposite forces proving a fragile equilibrium. Lower LT bond yields hang in the balance with lower oil prices and a slight improvement in risk sentiment. Assets that profited from the USD debasement trade, like gold or bitcoin, today also signal a loss of momentum, stalling near recent best levels. Today’s calendar lacked central bank speeches while second tier eco numbers drew little attention. German Ifo business sentiment improved from 86.7 to 88.8 in August, with both the current assessment (88.5 from 86.5; best since April 2024) and expectations (89.1 from 86.8; best since February 2026) contributing. The improvement is in line with last week’s German manufacturing PMI (54.1 from 52.2) and today’s export-driven upward Q2 GDP revision (0.3% Q/Q from 0.2% Q/Q). Weak investments and downside risks from shipping disruptions (low Rhine levels) for now prevent markets fully embracing positive signals from the industrial recovery.
News & Views
- The Hungarian central bank (MNB) lowered its base by 25 bps to 5.5%. The third consecutive reduction was flagged by the central bank since the June policy meeting, which since then saw room for easing throughout the summer. Inflation fell to a decade-low in July (1.2%), below the central bank’s June projections and well below the MNB’s 3% +/- 1 ppt target. The MNB assumes inflation to remain below 3% for the remainder of this year and throughout 2027 before returning to target only by 2028H1. Core inflation eased to 1.9% last month and households’ expectations regarding the matter are below the level seen at the beginning of the year. The forint has remained strong lately with the risk premium on domestic assets considered broadly stable. “These factors have preserved the Monetary Council’s room to manoeuvre.”, the statement reads. The central bank steers clear from updated guidance, simply saying that the Council will decide on the future path of the base rate in September when a new Inflation Report is available. Hungarian money markets figure the central bank isn’t done with cutting just yet with one to two more moves priced in in the months ahead. The forint appreciates today towards this month’s strongest levels around EUR/HUF 361.
- The National Bank of Belgium’s business confidence indicator fell in August from -11.9 to -13.2 after having risen for three months in a row. Sentiment in manufacturing deteriorated, primarily due to a sharp deterioration in demand expectations and a more negative assessment of total order books. Greater optimism about their current stock levels and expectations for staff hiring in the coming quarter tempered the drop somewhat. The building industry also experienced weakening confidence, driven by more pessimism about the demand outlook & their total order position and current order level. Business-related services extended a rise in confidence that kicked off in May. A much more positive assessment of the current level of activity and market demand was offset partially by more downbeat views regarding the trend in activity. Optimism in trade rose again thanks to a strong recovery of demand expectations and more positive expectations regarding employment.
