Markets
In a market devoid of hard economic data, yesterday’s credit-driven risk off from the US also fully hit European markets. European equities (Eurostoxx 50) opened >1.5% lower, an even bigger loss than the close in major US indices yesterday. Bunds extended their recent rally with the German 10-y yield at 2.53% testing the lowest level since end June. Money markets also further raised the chance of an additional ECB interest cut next year to about 75%. However, sentiment gradually turned less negative, especially as US traders joined. A series of US (regional) banks reported earnings with no unexpectedly high credit provisions. Also before the open of US markets, investors took comfort from some headlines from a Fox Business interview with president Trump, as he indicated that the current high tariffs on China were not sustainable. Recent threats might again be considered as some kind of ‘tactical’ (TACO?). Even so, both topics can still cause some ‘glass half full, glass half empty’ market swings going forward. After an initial decline this morning, both US and European yields have currently recouped initial declines. US yields are rebounding between 2 bps(5-y) and 1 bp (30-y). Key technical levels across the whole US yield curve that were broken yesterday (including 3.43/3.5% area for the 2-y, 4% for the 10-y) are still at risk. Money markets for now have left the idea of a potential 50 bps step at some of the two remaining Fed meetings this year and again are pricing two 25 bps steps at the end October and December meetings. German yields are currently marginally higher (30-y + 1 bp) after a decline at the open. Even so, in a broader perspective, both US and EMU bonds easily consolidate recent strong gains. The EuroStoxx 50 ‘limits’ the daily loss at the moment to 0.7%. US indices open little changed (Dow) to 0.5% lower (Nasdaq). The Vix volatility index jumped to the highest level since end-April, but eased as the US trading session proceeds. The dollar tracked the intensity of the’ US risk-off’ intraday, with DXY testing to low 98 area this morning before returning to 98.45. EUR/USD failed to maintain gains north of 1.17 (currently again 1.1675). USD/JPY after touching the 149.4 area, rebounds back to 150+ levels.
Aside from potential market moving headlines on trade and on credit, the eco calendar is backloaded next week. US data releases mostly are still suspended due to the government shutdown, but on Friday the BLS will publish (delayed) US September CPI data which still serve as input for the October 29 FOMC meeting. In this respect, the blackout period for FOMC members to comment on monetary policy starts tomorrow. Also on Friday next week, the US and EMU PMI’s will provide some insight on the economic momentum on both sides of the Atlantic. In the UK, September CPI data on Wednesday are key input for the November 6 BoE policy meeting. EMU bond investors look forward to credit rating reviews next Friday for the likes Belgium, France and Slovakia as well.
News & Views
The Hungarian National Bank (MNB) is widely expected to keep its base rate unchanged at 6.5% at next week’s policy meeting, accompanied by ongoing hawkish language. The MNB is facing stubborn inflation with CPI not expected to fall within the 2-4% tolerance band before the end of the year and strong services inflation creating second-round risks. The central bank is also wary of the government’s expansionary fiscal policy with new initiatives such as a 14th pension payment floated ahead of next year’s parliamentary elections. The Hungarian forint meanwhile has strengthened in recent weeks, bringing some comfort for the central bank through its disinflationary impact. The HUF rally, however, is now stalling around EUR/HUF 390 and signaling rate cuts of any kind risks triggering a reversal. KBC Economics sees little scope for monetary easing prior to early next year and even that depends on inflation having fallen to around 3% y/y and EUR/HUF more or less stable around the current levels.
Chinese finance ministry officials said that fiscal revenue has been picking up in September from August despite signs the economy could be losing momentum. September 2.6% increase compares to the 2% in the month before. For the first three quarters of the year, fiscal revenue grew 0.5% y/y, the officials said, adding that they’ll continue frontloading the bonds from 2026’s new local government debt quota in an attempt to further jumpstart the economy. On a related note, China’s Communist Party next week is holding its fourth Plenum in which they’ll map out the country’s next five-year vision (2026-2030). High-tech manufacturing is seen as being high on the priority list, together with a further shift towards private consumption. Chinese Q3 GDP growth numbers are also on tap next week with consensus expecting YtD GDP growth having slowed from 5.3% in Q2 to 5.1% last quarter..
 opened >1.5% lower, an even bigger loss than the close in major US indices yesterday. Bunds extended their recent rally with the German 10-y yield at 2.53% testing the lowest level since end June.){kind=link}