Markets
- Core bonds on Friday ended an uninspiring session mixed. Short-term maturities fell, pushing up yields by around 2 bps in Europe and 3 bps in the US. The long end of the curve confirmed the topping out pattern with yields closing virtually unchanged or a little lower. The previous days were characterized by the likes of (US) 10-yr rising intraday towards the 24-yr highs but lacking momentum to take them out. Some return action lower happened instead on Thursday with some minor follow-through moves going into a long weekend for a Treasury market that’s closed for Columbus Day today. It strengthens our view that some short-term reprieve or consolidation could be in store for a plagued (US) bond market. The 10-yr Note future, for example, has been declining on a weekly basis for two months straight. Last week marked the reversal. Energy markets this morning balance attacks by Iran-backed Houthis on the main airport of Saudi Arabia’s capital Riyadh against new Trump claims. The US president yesterday said that Ukraine and Russia have agreed a ceasefire in which neither party would strike energy facilities. The US President made such a claim last month as well and it remains to be seen whether such an energy ceasefire would hold this time around. Anyway, the announcement followed other related news that Trump and Russian president Putin struck a deal for the latter to lift a diesel export ban in favour of the US. Russia began banning exports from July and has extended them at least through October but will allow the US to buy several millions of tons of diesel in the coming months. While it may ease some of the immediate global diesel shortage concerns, it does little for gas prices. European prices are rising this morning to their multiyear highs seen in mid-September (€82.6/MWh) and are putting Bund futures under pressure. Brent oil ($104.5/b) holds near last week’s highs. The energy theme takes center stage in morning talks, along with Europe and China having agreed on a cap on hybrid car imports. Bloomberg reported the cap at 350k cars per year, to be raised by 6% annually from the second year of application and with a total duration of four years. News of the EU considering such a move got out already last week. The economic agenda for later today is extremely empty, apart from the annual World Bank and IMF meetings kicking off. We’re set for a technically inspired session. EUR/USD on the currency markets is looking increasingly vulnerable. The pair is barely holding on to 1.12 and looks like it needs nothing more than a small push to resume a correction lower. Deadlocked French and Belgian budget talks could do exactly just that. EUR/GBP is cracking near the YtD lows.
News & Views
- Rating agency Moody’s completed a periodic rating review of Belgium. It’s not the same as the announcement of a credit rate action and gives no indication about potential future action on the country’s A1 credit rating. Moody’s expects real GDP growth to slow to 0.7% this year, before recovering to 1% in 2027 and 1.1% in 2028, broadly in line with the economy’s potential growth rate. At present, the rating agency expects the deficit ratio (seen at 5.3% of GDP this year) to remain above 5% next year with the debt ratio continuing to rise from 108% of GDP in 2025 to 116% in 2028. Belgian PM De Wever in the meantime wants to send a clear and strong signal that the government is committing to put public finances in order in a credible and sustainable way. Yesterday evening he announced that he would not deliver a State of the Union in parliament on Tuesday as negotiations on a multi-year budget are deadlocked. Discussions will continue on finding (at least) €10bn to bring the country in line with the European spending rule by 2029. De Wever ruled out resorting to provisional twelfths when the parliament passes the budget too late.
- The Reserve Bank of India announced regulatory measures for the FX markets this weekend. In view of the evolving conditions (all-time lows for INR) and to ensure orderly functioning on the FX market, the RBI introduced restrictions on rebooking of cancelled FX derivative contracts, a reduction in the threshold for undertaking FX derivative transactions without establishing underlying exposure and the introduction of an FX risk reserve (FERR). The latter is a 20% cash reserve for all FX derivative contracts involving INR with a notional amount larger than $2mn equivalent. The RBI also decided to open a special window to meet the entire daily dollar requirements of three public sector oil marketing companies. INR is slightly stronger this morning at USD/INR 95.75 compared to an all-time high at 96.95.
