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Sunset Market Commentary


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.



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