Markets

Commenting today’s moves on main markets isn’t the most exciting thing to do. European stock markets tried a lukewarm comeback after a -1% opening, but don’t get that far. The fragile risk environment continues to support the dollar. EUR/USD changes hands around 1.1630, dropping further below the 1.1696 support handle. The trade-weighted dollar heads in the opposite direction away from 94 resistance (currently 94.60). Core bonds benefit slightly from the risk sentiment. The US yield curve bull flattens slightly with yields ceding 0.5 bps to 1.8 bps. The German yield curve makes a similar move yields, dropping by 0.8 bps to 2.5 bps. 10-yr yield spreads vs Germany widen marginally with Germany (+4 bps) underperforming. Sterling defies the odds today, eking out some gains despite risk aversion. EUR/GBP trades at 0.9130 from a 0.9160 open.

Plenty of eco data, but none of them able to trigger a market reaction. German Ifo Business sentiment rose from 92.5 to 93.4 in September, broadly as expected. Both the current assessment and expectations improved marginally. Details showed a similar split as yesterday’s PMI’s: a notable increase in manufacturing sentiment cancelled out a drop in the service sector gauge. US weekly jobless claims stabilized at 870k while consensus forecasted a decline to 840k. The elevated level of claims (2009 peak was 665k) continues to point at a weak US labour market which doesn’t bode well for the economic recovery. The Belgian Business confidence barometer continued to recover in September (-10.8 from -12), for the fifth month in a row. Details showed eroding confidence in services and trade, while building and manufacturing advanced. A familiar story.

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News Headlines

The Turkish central bank (TMCB) unexpectedly raised its key policy rate with 200bps to 10.25%, citing higher-than-expected inflation as a result of the economic recovery and strong credit momentum. The TMCB stands ready to do more to keep the disinflationary process on track. The Turkish lira, arguably another key source of spiraling inflation, only temporarily benefited from the rate hike. At EUR/TRY 8.87, the lira hovers close to its record-low of 9.017 it touched just hours ago suggesting the move is too little, too late.

In the latest round of the ECB’s TLTRO III, European banks took some €175 bn in funding. While at the high end of expectations, it is far below the €1.3 tn allocated in the previous round three months ago. TLTRO’s are designed to stimulate bank lending to the real economy. With the latest operation, excess liquidity is expected to reach the €3tn.

The Norges Bank left rates unchanged at 0%. The Norwegian economy largely develops according to its baseline scenario, resulting in only minor downward revisions to growth and inflation in its September forecasts. The central bank also kept a rate hike in 2023 on the table. Among the bigger risks flagged, however, are renewed social distancing measures as a result of the coronavirus flare-up weighing on spending in the coming months. EUR/NOK extends gains after yesterday’s technical break through 11.

In the land of the Alps, the Swiss national bank (SNB) also kept policy rates stable at -0.75% and continues to provide the financial system with liquidity under its Covid-19 refinancing facility (CRF). The SNB reiterated its willingness to intervene more strongly in FX markets to relieve upward pressure on the Swiss Franc. Data on Monday showed that the central bank isn’t doing so recently though. The SNB expects growth to decline about 5% this year. That’s less than foreseen in June due to the fact that the downturn in 1H 2020 was less strong than feared. EUR/CHF trades stable in the high 1.07-area.

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