Markets
There were plenty of eco data in the Europe and the US. Most were better than expected. EMU economic confidence stabilized while a modest decline was expected. Italian confidence data also held up well or even improved (manufacturing). German labour data also improved further. German inflation was the exception to the rule as it declined further to -0.5% Y/Y. US economic growth rebounded by a strong 33.1% Q/Qa, slightly more than expected. However, even after this rebound activity is still below the pre-Covid levels. US initial jobless claims for the second consecutive week declined faster than expected from 751.000 to 791.000.
Next to the long list of data, markets looked forward to the ECB policy decision and guidance from chair Lagarde at the press conference. The ECB as expected left the parameters of its policy unchanged leaving the deposit rate at -0.5% and continues its asset purchases under the APP and PEPP programs. However, in the first part of its policy statement the ECB showed that it is well aware that, despite the (uneven) rebound in Q2, risks are currently clearly tilted to the downside. In this context, it will assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate. The new macroeconomic projections in December will allow for a reassessment of the outlook. On the basis of that assessment the Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation. Given the current deterioration, markets clearly understand today’s ECB guidance as signaling more stimulus in December. Lagarde de facto confirmed this interpretation. She stressed that ECB will look at all instruments for the December policy meeting. The ECB also again reiterated the need for additional fiscal support, both at a national and EU level.
• The markets understandably hardly reacted to the better eco data. However, after a hesitant open, US equities took the way north with gains of up to 1%+. Most European indices also reversed earlier losses. We see the move mainly as technical in nature after yesterday’s sell-off. US and EMU bonds showed a divergent picture. US yields are rebounding up to 3.5 bp. German yields decline 1-2 bp across the curve. The ECB’s commitment on further stimulus supported the already-ongoing bid for Bunds this afternoon. The 10-y German yield again tested the -0.64% support during the ECB press conference, but with no sustained break yet. The prospect of a recalibration of all policy instruments (including APP and/or PEPP) also supported peripheral bonds despite the fragile risk sentiment. 10-y intra-EMU spreads versus Germany narrowed up tot 5 bp (Italy) to 9 bp (Greece). On the FX market, EUR/USD fought an uphill battle. EUR/USD tested the 1.1696 support at the start of the press conference. The pair dipped temporarily below this level as the ECB explicitly mentioned FX as an important parameter. The reference to all instruments also leaves a depo rate cut as an option. EUR/USD currently again trades in the 1.1690 area. EUR/GBP spiked up and down in the lower half of the 0.90 big figure. For now there was no additional positive news from Brexit to support sterling gains. EUR/GBP trades in the 0.9040 area.
News Headlines
Belgium Q3 growth rebounded with 10.7% q/q after a record decline of -11.8% in the second quarter. Despite the jump, year-on-year growth remains at a negative -5.2%. According to the preliminary estimate, activity in the construction sector recovered the most with a whopping 18% q/q. Industry posted a 12% growth, services came in third with 9.9%. The National Bank of Belgium added that estimates are prone to more uncertainty than usual.
The Hungarian central bank kept the one-week deposit policy rate stable at 0.75% as the forint remained heavily in the defensive the last few days with EUR/HUF surpassing key technical levels at 366. The MNB lifted the rate of its most influential policy tool in September to stop the HUF-decline. EUR/HUF trades slightly stronger compared to yesterday but remains close to its previous all-time high of 370.
