Sunset Market Commentary

Markets

Q3 corporate earnings helped risk sentiment recover from recent hiccups related to the US-Sino trade war, French politics and US (regional) banks (credit-losses linked to fraud-related corporate defaults). And although the rally fizzled compared with yesterday, the EuroStoxx 50 still manages a new step into uncharted territory, taking on the 5700 level for the first time ever. As of last Friday, 86% of companies overshot earnings estimates and nearly 20% of US S&P 500 companies are scheduled to give updates this week. Today, we already retain positive earnings from blue ship companies like 3M, General Motors, Coca Cola, Halliburton and Phillip Morris International with Netflix still reporting after the close. Earnings updates so far don’t align with the overall pessimistic economic sentiment in place related to the aftermath of US tariffs. Or to flip it around: corporate updates suggest that previous economic (doom) scenarios might have been too negative. Bullish equity markets contrast with the more guarded signal coming from (core) bond markets. US yields face difficulties to get away from key support levels across the curve, stretching from 3.43 for the 2-yr over to 4% for the 10-yr to 4.6% for the 30-yr. EU bond yields are in the same way stuck around lowest levels since the start of the summer, especially at the longer end of the curve. Friday’s global PMI surveys (October) are a good barometer for the contrasting stock/bond point of view. The US dollar is better bid today, but gains remain technically insignificant. The trade weighted dollar rises from 98.60 to 98.90 with EUR/USD slipping from 1.1642 to 1.1602. The Japanese yen underperforms (USD/JPY 151.90 from 150.75) on a combination of LDP Takaichi becoming PM and rumours that the BoJ sees no urgency to implement another rate hike at the end of this month. The market implied probability of a move from 0.50% to 0.75% fell from 25% to 2.5%. Assets that recently flourished like the Swiss franc or some commodities (gold/silver) ran out of steam today. EUR/CHF bounced off the low 0.92 support area with prices of those two precious metals falling by over 3% and over 5% respectively. In Central-Europe, EUR/HUF holds below the 390-handle after the central bank kept its policy rate unchanged at 6.5%. They kept to the message that tight monetary conditions are warranted given the necessity of anchoring inflation expectations. The path forward is careful and patient. MNB governor Varga is committed to keep making independent monetary decisions. That’s a strong message to the Hungarian government after PM Orban, at risk of losing parliamentary elections next year, applied pressure on the central bank earlier this month to pursuit a more growth-supportive policy.

News & Views

The head of Sweden’s central bank is urging policymakers to quickly return to budgetary discipline and return to its fiscal framework. Sweden’s political parties agreed to temporarily suspend strict spending rules so that they can honor their obligations after having joined NATO in 2024. The country committed to spend 3.5% of GDP on defense and a further 1.5% on civil defense with both being excluded from the normal budget. Riksbank governor Thedeen said it’s not a problem right now – Sweden has a low debt ratio of around 33% – but he sees the lack of a clear plan to return to orthodoxy as a warning signal. The political parties across the spectrum have earmarked 2035 to return to balanced public finances but kept out the details on how to do so.

Canadian inflation unexpectedly rose by 0.1% m/m last month, pushing the yearly reading from 1.9% to 2.4% (2.2% expected). Underlying gauges (median, trimmed mean) accelerated as well and more than analysts had penciled in. The main contributors were grocery prices, which rose 4% y/y, and shelter costs, up 2.6%. Gasoline prices, though still down 4.1% annually, declined less sharply than in August (-12.7%) due to base effects: price fell 7.1% m/m in September 2024 vs +1.9% in 2025. Travel tour prices also fell less than in previous months. The numbers complicate matters for the Bank of Canada. Its quarterly survey published yesterday virtually gave an all clear for another rate cut (to 2.25%) at the October 29 meeting with lingering trade tensions and tariffs reported to weigh on sentiment and activity. Markets scale back the implied probability from 75% to 65% currently, lifting front end yields by a couple of basis points. USD/CAD eases marginally towards the 1.40 barrier.