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Sunset Market Commentary


The OECD published its biannual economic outlook today. The recap paints a grim outlook: “The global economy is facing significant challenges. Growth has lost momentum, high inflation has broadened out across countries and products, and is proving persistent. Risks are skewed to the downside. Energy supply shortages could push prices higher. Interest rates increases, necessary to curb inflation, heighten financial vulnerabilities. Russia’s war in Ukraine is increasing the risks of debt distress in low income countries and food insecurity.” World GDP forecasts are downgraded to 3.1% Y/Y this year, 2.2% in 2023 and 2.7% in 2024. The UK is forecast to suffer most amongst G7-nations the next two years with forecasts of respectively -0.4% in 2023 and 0.2% in 2024. Germany is the only other in this group expected to shrink next year (by 0.3%) before rebounding 1.5% in 2024. Inflation will remain high in 2023, but moderate because of tighter monetary policy and decelerating growth. For OECD nations we’re talking about 9.4% average inflation this year, 6.6% in 2023 and 5.1% in 2024. None of the major economies apart from Japan are forecast to have average inflation below 2% in 2024. OECD interim chief economist Santos Pereira stressed after the OECD publication that controlling inflation has to be the top priority otherwise we might end up with a wage-price spiral like we had in the 70s or we end up with a situation that inflation becomes so entrenched that the pain needed to control it will be even greater. Risk of overshooting are certainly less than risks of inaction. Finally he added that fiscal policy should work hand-in-hand with monetary policy to help control inflation.

The OECD outlook didn’t interrupt otherwise dull trading. An empty eco calendar on both sides of the Atlantic can’t provide guidance with volumes again thin in this shortened US trading week. Risk sentiment on European bourses improved from yesterday, with main indices gaining marginally. Core bonds gain some ground with US yields 0.5 bps (30-yr) to 3.5 bps (3-yr) lower. German Bunds underperform with yields 1 to 2 bps higher across the curve. The front end marginally underperforms, perhaps with the hawkish ECB Holzmann comments still at play. He favoured a 75 bps rate hike in December, but that’s the minority view for now. EUR/USD trades with a very small upward bias to currently change hands around 1.0270. Sterling outperforms slightly with EUR/GBP currently seen around 0.8640 in a technical move after losing the recent lows.

News Headlines

Belgian consumer confidence recovered in November. But at -22 (from -27), the indicator remains at levels comparable to those seen in the aftermath of the pandemic. Households were less pessimistic in their expectations regarding the general economic situation in Belgium (from -42 to -32), although they are slightly more concerned about the labour market outlook (from 36 to 38). Belgian consumers are slightly more upbeat with respect to their financial situation as expectations for 12 months ahead improved from -17 to -10. Saving intentions have strengthened but not nearly enough to make up for the steep declines seen in the past two months (from -11 to -7).

The Hungarian central bank (MNB) kept its base rate steady at 13% today. The decision was widely expected as the central bank repeatedly said, today too, that it considers 13% a high enough level to manage fundamental inflation risks. Instead, it has resorted to emergency measures including one-day deposit tenders carrying 18%, to sooth those in the market who disagreed. The MNB said these ad hoc tools have improved financial market stability and tightened conditions. Interbank liquidity will be further reduced, enhancing the current policy stance, via a two-month deposit tender and FX swap tenders providing euro liquidity. New MNB forecasts pencil in 3-4% growth for this year, 0.5-1.5% the next and 3.5-4.5% for 2024. Easing external inflationary pressures, the global growth slowdown and shrinking domestic demand should lead to a turnaround in inflation from 2023. Price growth this year may average between 13.5-14.5% and should return to the tolerance band (3%+1 ppt) in 2024H1. The forint trades virtually unchanged. EUR/HUF slightly eases to 407.86. Hungarian swap yields decline between 15-30 bps but the bulk of the move already occurred before the MNB decision.

KBC Bank
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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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