Markets
US yields currently are changing between +1.5 bps (2-y) and 0.5 bps (30-y). Similar story for the German yield curve (2-y +0.5 bps; 30 y -1 bp). This looks like being the new normal, potentially for some time to come. Admittedly, the US services ISM still to be released after finishing this report, gives markets one of the few timely indicators bringing some ‘new eco news’. However, with markets currently almost fully discounting two additional 25 bps rate cuts for the two remaining Fed meetings (end Oct; Dec), we don’t expect an outsized reaction. Even a big (positive?) surprise probably isn’t enough for markets to change their expectations on some additional ‘risk management’ Fed easing going forward. There were few comments from Fed members on policy today. In this respect markets now look forward to next week’s Minutes of the 17 September Fed policy meeting to get some insight on the internal debate on the need/pace of further easing. This insight for sure will be interesting. Even so, it remains a bit of old news and the huge dispersion in the dots suggests that some more detailed comments won’t solve the issue of contradicting views and the absence of visibility on the Fed reaction function going forward. Maybe, the most valuable market information on the ‘real’ demand/supply balance in US interest markets might come from the mid-month US auction series next week (3-y, 10-y, 30-y). Regarding ECB policy, Belgian ECB council member Pierre Wunsch reiterated that the central bank currently is in ‘ a good place’. Aside from the current policy stance, the governor of the National Bank of Belgium showed quite some criticism on the implications of the protracted period of low policy rates that preceded the inflation, including in terms of fiscal discipline in a number of countries. Wunsch also raised questions on the effectiveness of massive asset purchases and the consequences of the bank making losses for a long period. On markets outside FI, overall low volatility keeps US and European indices (Eurostoxx 50) near all-time highs, but momentum eases compared to stronger dynamics earlier this week. On FX markets, the dollar is still holding tight ranges (DXY 97.8, EUR/USD 1.1735 from 1.1715). The yen weakened slightly this morning after balanced comments from governor Ueda. Markets now keep a close eye at the nomination of a new LDP leader/Prime minister. Will the yen be able to resume its rebound once this political event risk is out of the way? Sterling this week avoided a test of the key EUR/GBP 0.8769 area, but at 0.8723 and with an attempt of the UK currency to regain the 0.87 mark failing, the picture for sterling still looks vulnerable.
News & Views
With polling stations opening in the Czech Republic, the ANO movement appears poised for victory with around 30% support in election polls. The key question now revolves around its choice of coalition partners, which will shape the contours of future policy. Potential allies include SPD, Stačilo, and Motorists—all critical of the EU and NATO. Parties need at least 5% of the vote to enter parliament. One thing is already clear: the upcoming four-year electoral cycle will bring no meaningful progress on euro adoption in the Czech Republic. Earlier this year, both the Ministry of Finance and the Czech National Bank recommended that the government should refrain from setting a target date for euro adoption. If the next Czech electoral cycle is once again a non-starter, the earliest realistic date for joining the eurozone would be 2034.
The United Nation’s FAO Food price Index declined slightly for a second straight month in September, from 129.7 to 128.8. That’s nevertheless still the third highest reading since February 2023. Drops in sugar and dairy prices led the decline. The FAO Sugar Price Index (-4.1%) reached its lowest level since March 2021 driven by higher-than-expected sugar production in Brazil and favourable harvest prospects in India and Thailand, following ample monsoon rains and expanded plantings. The FAO Dairy Price Index declined by 2.6%, partly reflecting waning demand for ice cream in the Northern Hemisphere and higher production prospects in Oceania. The FAO Meat Price Index was the only to increase (+0.7% M/M; +6.6% Y/Y). Cereal and vegetable oil prices recorded declines of respectively 0.6% and 0.7% in September.
 and 0.5 bps (30-y). Similar story for the German yield curve (2-y +0.5 bps; 30 y -1 bp). This looks like being the new normal, potentially for some time to come. Admittedly, the US services ISM still to be released after finishing this report, gives markets one of the few timely indicators bringing some ‘new eco news’.){kind=link}