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Sunset Market Commentary

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Trading took a slow start today with US investors absent (Labour Day) and the European eco calendar empty. German Bunds lost a few ticks at the start of trading, catching up with Friday’s post-payrolls losses for US Treasuries and taking into account comments by ECB Wunsch who said that it’s too early to talk about a rate hike stop adding that the ECB might need more to fight very persistent underlying inflation. Dovish ECB Centeno later balanced the comments by suggesting that there is a risk of doing too much on rates. The different views show that the jury is still out on the September decision. Money markets see a 25% probability of a September rate hike (our preferred scenario) . German yields today add 2.5 bps to 4 bps with the belly of the curve underperforming the wings. EUR/USD gains a few ticks, trying to regain EUR/USD 1.08. European stocks markets opened strong on the back of positive Asian momentum (more Chinese stimulus), but pare gains to currently +0.25% on average.

The Belgian debt agency updated its borrowing requirements and funding plan after announcing the “by far most successful issuance” ever. They raised €21.9bn via a fiscally-friendly 1-yr State Note for the retail customer. Renewed issuance of the 1-yr State Note in December 2023 is possible, but not mentioned. The outstanding amount of Treasury Certificates is now expected to decline by €13.46bn, whereas previously an increase of €1bn was expected. The net change in other short-term debt and financial assets will equally decline, and would amount to -€4.37bn. The Treasury’s cash reserves will structurally increase by some €9bn. The 2023 gross borrowing requirement was revised downwards by €2bn to €49.07bn with the OLO funding need lowered from €45bn to €42.1bn (€33.79bn or 80% of which already done). Because of this favorable position, the November OLO auction will be cancelled. Since the announcement of the 1-yr State Note, the German/Belgian 10-yr yield spread narrowed from around 67 bps mid-August to 62 bps currently. That’s the tightest since March of this year. The French/Belgian 10-yr yield spread narrowed from 13 bps to 9 bps over the past fortnight.

News & Views

Turkish inflation printed substantially higher than expected in August at 9.09% M/M and 58,94% Y/Y, compared with 9.49% M/M and 47.83% Y/Y in July. Markets expected a more modest rise of about 6.50% M/M. In a monthly perspective, the rise was driven by transportation costs (16.61%), furnishes and household equipment (+9.36%) and food an non-alcoholic beverages (+8.48%). The latter has a 25.4% weight in the expenditure basket. Core inflation ex energy, food and beverages, tobacco and gold also accelerated more than expected to 8.89% M/M and 64.85% Y/Y. The rise in inflation comes after president Erdogan after elections allowed for a change in the CBRT’s unorthodox monetary policy (reducing interest rates while at the same time taking non-monetary policy measures to limit the decline of the lira). In a subsequent move to a more orthodox/market-oriented policy, the lira lost more than 25% against the dollar since end May even as the CBRT raised its policy rate from 8.50% end May to 25.00% in August. Today’s data put pressure on the central bank to continue its tightening cycle on September 21. The lira depreciated modestly against the dollar, from USD/TRY 26.73 on Friday to 26.775 currently.

Czech nominal wages in the April/June quarter rose 1.5% Q/Q to be up 7.7% Y/Y, down from 8.7% in the first quarter. However, as consumer price inflation during that period rose by 11.1%, real wages still declined -3.1% Y/Y from 6.6% Y/Y in Q1. The volume of wages increased by 8.3% and the number of employees increased by 0.6%. In its summer forecast, the CNB expected nominal wage growth in Q2 at 8.6% Y/Y, 8.7% in Q3 and 8.8% in Q4. So current data suggest that wage pressures in the country are slower than the CNB anticipated. This could support the case for the CNB to cut its policy rate (7%) in the final quarter of this year. The koruna today declined slightly to EUR/CZK 24.11.

KBC Bank
KBC Bankhttps://www.kbc.be/dealingroom
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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