Markets
The final quarter of 2021 kicked off with a beating for equities. European stocks gapped more than 1.5% lower at the open. It was largely a catch-up move with the US where equities fainted in the final trading hour amid all-or-nothing discussions about Biden’s infrastructure and social spending plans. The ongoing and even escalating energy crunch hurts investor mood as well and turns into an every man for himself situation. China ordered its state-owned companies to secure supplies “at all costs”. European gas futures spiked to a record high of $100/Mwh this morning before easing to 93.9 currently. Sentiment nevertheless improved throughout the session with the EuroStoxx50 erasing all previous losses. In a similar move, the Bund rallied in the wake of yesterday evening’s UST late-session sprint. Unlike stock markets, however, German yields didn’t recover and stuck to their losses throughout the day. European inflation surprised to the upside by hitting the fastest pace since 2008 (3.4% vs 3.3% expected, up from 3%) but after seeing (a.o.) consensus-beating German inflation yesterday, markets simply shrugged at the data today. The German yield curve currently bull flattens with yields down 1.2 bps (2y) to 4 bps (10y, forfeiting -0.20% again but holding the narrow upward trend channel). US yields mostly whipsawed around opening levels today. Yields are little changed with only the 5y and 10y tenor losing 2 and 1 bp(s) respectively.
After testing strong yet important resistance around 94.74, the (trade-weighted) dollar’s momentum faded. It could contain the damage yesterday but today’s losses are somewhat bigger. DXY retreats from an intraday high of 94.39 to 94.04 currently. A first ST support is situated around 93.73. USD/JPY extends a sharp decline yesterday to 111.08 currently. This relates to a rather stable EUR/JPY. EUR/USD is trying to fight its way back above 1.16. At 1.1603 the pair is testing the Nov 2020 correction low that since Wednesday turned from support into resistance. The common currency is losing against the pound however. A poor attempt this morning to extend EUR/GBP’s very short stay north of 0.86 failed miserably. EUR/GBP is changing hands at 0.855. Sterling is well bid overall though, gaining against every G10 major except the NOK. A stronger-than-expected final manufacturing PMI (57.1 vs 56.3) may have helped.
News Headlines
Polish inflation unexpectedly accelerated further in September, rising by 0.6% M/M to 5.8% Y/Y (from 5.5% Y/Y) and further exceeding the upper bound (3.5%) of the tolerance band around the 2.5% NBP inflation target. The Y/Y-outcome is a fresh 20-yr high and adds to pressure on the central bank to abandon its zero interest rate policy. Yesterday’s September Minutes showed renewed minority calls to start a tightening cycle, which were rebuffed by the majority centering around governor Glapinski. The latter always vowed unchanged rates until the end of his reign (early 2022). The Polish manufacturing PMI slowed from 56 to 53.4 in September, the lowest reading since February. Details showed that Polish manufacturers were constrained by severe shortages and rising input prices. Client demand growth has softened and Polish manufacturers hinted at the possibility of the sector heading towards a period of dreaded stagflation. The Polish zloty extended yesterday’s post-FOMC Minutes with markets again starting to discount the possibility of a rate hike at the November meeting, when new growth and inflation forecasts are available. EUR/PLN drops in two days from 4.65 to 4.58.
Hungarian deputy governor Virag said that the size of the September rate hike (+15 bps) is indicative in terms of the decisions to be taken in coming months. The tightening cycle will continue as long as the inflation outlook justifies it. Virag calls it a long road and we’re far from the end. Asked about recent risk-related HUF-weakness, he said that MNB is more interested in more permanent trends rather than short term volatility. A weaker currency risks neutralizing part of the central bank’s tightening efforts. EUR/HUF follows this week’s intraweek dynamics of EUR/PLN, currently trading near 358 after staying a brief period north of 360 earlier this week.
