Markets
The risk rebound from last week’s trade and credit related noise yesterday fizzled out. US equity indices closed little changed, but kept all-time record levels within reach. The EuroStoxx50 intraday even touched a minor new record. Equity investors apparently are in a process of switching focus between macro themes (trade frictions, private & government debt sustainability …) on the one hand, and corporate earnings on the other. For now, hick-ups in one storyline mostly have (easily) been counterbalanced by the other pillar. Bond investors already for some time take a more cautious approach. With little in the way of policy relevant eco news published in the US, it is difficult to assess the real reason for the divergent bond market approach. That said, the gradual but protracted decline in core yields still also causes a further easing in financial conditions. This pattern at some point might reach its limits. However at least for now, it continues. The information stop in the US probably facilitates it as it is hardly challenged. Whatever the driver, US yields yesterday continued their gradually, but protracted downtrend moving from little changed (2-y) to 2.6 bps lower (30-y). Especially, support levels at the long of the US curve are at risk of a (sustained) break (10-y 4%; 30-y 4.6%). Germain/ EMU yields show a similar pattern. After recent decline/ repositioning, for now there is little reason to anticipate more potential ECB easing. The German 2-y yield closed unchanged yesterday. At the long end, lower yields also still was the path of least resistance (30-y -3.6 bps). The dollar continued its rebound from last week’s (US risk-off driven) setback with the DXY nearing the 99 barrier (close 98,93). EUR/USD returned to the 1.16 big figure. The yen underperformed as the new government is expected to implement a growth supportive policy, with the BoJ in no hurry to aggressively step up policy normalization. Both USD/JPY (151.9 from 150.75) but also EUR/JPY (176.24 from 175.5) gained. We also take notice of quite a sharp correction in the likes of silver and gold. Oil tries to find a bottom (Brent $62.3 p/b)
Asian equities show no unequivocal directional pattern this morning. The yen stabilizes (USD/JPY 151.9) as Japanese PM Takaichi orders a new package to address the cost of living crisis. The eco calendar is again thin. The US Treasury will sell $ 13 bln of 20-y Notes. UK inflation data of September avoided an expected rise, with headline inflation at 0% M/M and 3.8% Y/Y (unchanged vs 4% expected). Core inflation (3.5% Y/Y from 3.6%) even eased. Services inflation was unchanged at 4.7%. The September data are supposed to be the peak in this cycle. The better starting point provided by today’s data probably reinforces the case for BoE governor Bailey to give some more weight to a weaker labour market at the November 6 meeting. A rate cut might be a closer call than the low probability markets are currently discounting. EUR/GBP jumps from the 0.868 area to test the 0.87 big figure.
News & Views
The Indian newspaper Mint, citing people familiar with the matter, said that the US and India are nearing a trade deal that could cut tariffs on exports to 15-16%. President Trump raised the levy to 50% a couple of weeks ago, up from the initial 25% to pressure the country to stop buying Russian oil. New Delhi started buying Russian oil in major quantities and at a discount after Moscow’s invasion in 2022. The Mint said that India may now agree to gradually reduce its Russian oil imports adding that it would also tear down own trade barriers to allow for more US corn and soymeal imports. The newspaper floated next week’s Association of Southeast Asian Nations summit in Malaysia as an opportunity to announce the deal.
The Hungarian central bank (MNB) kept the policy rate as expected at 6.5% yesterday. It has a pretty downbeat view on the current economic conditions with retail sales slowing down, industrial production volumes falling and construction cratering since the last policy meeting. Next year, however, things should improve both internally (domestic consumption and investments) and externally (rising exports). Inflation last month stood at 4.3% in September and household inflation expectations remain elevated. The MNB expects CPI to remain above the tolerance band of 3% +1 ppt, despite government policy that prompted mandatory and voluntary price restrictions. The central bank noted strong corporate repricings on products outside the government’s scope. It considers tight monetary conditions still necessary to achieve a sustained return to the inflation target, currently estimated to happen in early 2027. The forint barely budged to trade near the strongest levels in a year around EUR/HUF 390.
 on the one hand, and corporate earnings on the other. For now, hick-ups in one storyline mostly have (easily) been counterbalanced by the other pillar. Bond investors already for some time take a more cautious approach.){kind=link}