Sunrise Market Commentary

Markets

Investors dumped US Treasuries for a second (trading) day straight. Yields rallied between 10 and more than 15 bps in bear flattening. Since US rates found their bottom last Friday, longer-term maturities have recouped well over half of the losses incurred since reaching their multi-decade highs end-September/early-October. Short-term Treasury yields have recovered almost completely with the 2-yr yield targeting 4.95% resistance. Tuesday’s CPI report acted as the Waller-reinforced trigger. Fed speak since Waller opened the debate on a 50 bps move in December generally pointed in the direction of more hikes to come but preferably with the usual 25 bps size. Cleveland’s Hammack came closest in joining Waller by supporting it if she would believe the Fed is falling behind the curve. SF Fed Daly said more hikes are needed because inflation isn’t “simply in the sectors that are most directly affected by tariffs or oil”. For NY Fed heavyweight Williams “inflation is far too high and it continues to be high even in the latest data”. He said the central bank will need to act. US money markets added to tightening bets with the tally through mid-next year now standing at 3 to 4 hikes. The implied probability for back-to-back 25 bps hikes in December and January rose to over 100%, assuming the 15% tail risk for a 50 bps move next month does not materialize. The hawkish speak came alongside a significant uptick in energy prices, fueled by Trump. The US president suggested he could forgo a deal with Iran and accept the current stalemate instead. It’s considered the third option in a set of less attractive looking alternatives: renewed military strikes risk broader retaliation and thus escalation while the economic squeeze on Iran has so far failed to extract concessions from the country, dampening the prospect of what would be a good deal from the US point of view. Brent prices surged towards $96 yesterday and are taking out that level in Asian trading this morning. After a short stay around €80/MWh earlier this month, natural gas prices are back near the triple digit level. Energy price developments pulled European swap rates from the lows, producing net daily gains of 3.5-5.5 bps across the curve. The US dollar steamrolled over the European and other major currencies. EUR/USD tumbled to a new 1.5 year low of 1.1055, below the May 2025 correction low. A minor recovery this morning looks unconvincing and may be doomed anyway with US October PPI figures coming in later today. The headline number could accelerate from 6.3% to 6.6%, the fastest since November 2022. A slew of ECB and Fed speeches are scattered throughout the day. General risk (stock) sentiment serves as a wildcard.

News & Views

US existing home sales fell by more than expected (5.5% M/M) in October to 3.75mn (annualized pace), the lowest level since August 2010. Existing sales hovered sideways between 3.86mn and 4.38mn since the start of 2023. Sales were heavily influenced by mortgage rates which surged to 7.61% in the period under review. Their subsequent fall (to 7.21%) is expected to show in a rebound in November home sales. The median existing home price rose 0.4% M/M (from +1.4%). If sales continued at the October pace and no new homes were listed, the entire existing inventory would be sold out in 5.1 months. That’s up from 4.7 months in September but still somewhat below the 6 months used as reference in a balanced housing market.

The US Federal Reserve announced its revised tentative schedule of FOMC meetings in 2027. At the previous press conference, Fed Chair Warsh announced that the central bank would still meet 8 times next year, but that 1 of those meetings would be solely dedicated to strategy discussions instead of the typical monetary policy decision. The new calendar suggests that the October 26-27 meeting will be on broad monetary policy strategy issues. To better spread (policy) meetings out, the Fed also rescheduled the meeting previously planned for Dec. 7-8 to Nov. 16-17. The subsequent session would take place on Jan. 25-26, 2028. Warsh also said that in 2028, the committee will have two strategy meetings and 6 for setting policy.