Markets
Core bond yields during most of European dealings followed commodity prices higher. After European noon and with US dealers about to join, some hesitation kicked in. On balance, the US yield curve still bear steepens with yields adding 1.2 bps (2-yr) to 3.4 bps (30-yr). Changes on the German curve vary between +0.3 bps (2-yr) and +1.4 bps (30-yr). Energy prices in general remain upwardly oriented as the supply/demand mismatch continues dominating media headlines. Brent crude took out $80/barrel as OPEC+ JMMC recommends to proceed with 400k b/d production hike and not accelerate the process. European stock markets mostly traded with small gains after opening on the back foot. Asian markets (excl China; closed for Golden Week) felt tremendous stress from the suspension in Evergrande shares. Last Friday’s correction lower in the dollar continued. The trade-weighted greenback drifted from the low 94-area to 93.80. The mirror image in EUR/USD is a return north of 1.16. Comments by vice-governor de Guindos (see below) didn’t additionally boost the single currency as witnessed by EUR/GBP’s flipflopping around EUR/GBP 0.8560. UK Treasury Secretary Sunak’s speech at the Tory party conference had no market impact. Amongst other, he signaled extending job support programmes into next year. Commodity-related currencies enjoyed the commodity bonus. USD/CAD tests first support at 1.26. EUR/NOK dives below the psycho 10 mark for the first time since May. The YTD low at 9.90 is next support. The 2020 low follows at 9.82.
Today’s eco calendar couldn’t really inspire, but that will change later this week. Especially the US agenda looks tempting with US services ISM (tomorrow), ADP employment (Wednesday) and payrolls (Friday). The EMU side is less exciting with only outdated retail sales (Wednesday) and Minutes of the previous ECB meeting (Thursday). Speeches by ECB governors, including chief economist Lane, serve as a wildcard. We stick to our view that ECB members over the course of Q4 will start preparing the turn toward policy normalization. Central bank meetings down under will highlight the difference in stance between Australia and New Zealand with the latter expected to pull the trigger on a first rate hike after delaying the move in August over new Covid-cases. The National Bank of Poland meets on Wednesday, with markets since last week’s Minutes and inflation beat (20y high) again betting on hints in the statement that a policy U-turn might arrive as soon as the November meeting when new growth and inflation forecasts are available.
News Headlines
Turkish real yields just got even more negative. September headline inflation accelerated from 19.25% to 19.58% y/y amid quickening energy prices (22.27% vs 20.72% in August). This compares to a central bank policy rate that was cut from 19% to 18% end of September. Core inflation unexpectedly sped up too, from 16.76 to 16.98%. With producer inflation coming in at 43.96% y/y there seem to be more upward price pressures in the pipeline short-term. It was, however, the first decline compared to the month before (45.52%) since May 2020. This may have eased some of the most acute inflation fears in markets, resulting in a fairly stable Turkish lira in the wake of the data release. EUR/TRY hovers unchanged around 10.29.
ECB Vice-President Luis de Guindos said that the recent rise of inflation in the euro zone is not only the result of (temporary) base effects. He said some of the drivers, such as supply bottlenecks and higher energy costs, were having a structural impact “that goes beyond what we were expecting only a few months ago”. This in turn might lead to workers changing perceptions and wage demands, provoking an inflationary wage spiral through second-round effects. De Guindos added that the labour market hasn’t seen such a “sizeable salary increases for the time being” but that they need to pay close attention as negotiations are only just starting.
