Markets
Commodity markets take center stage today. First, there’s oil. Brent crude prices jumped from the low $60/b area at the start of the week to currently $66/b. The US and the EU joined last week’s move by the UK in stepping up sanctions against Russia. The US increased pressure on Russia’s energy sector by targeting the country’s two largest oil companies, Rosneft and Lukoil, to degrade the Kremlin’s ability to raise revenue for its war machine and support its weakened economy. The sanctions freeze all US-based assets of both oil companies and their subsidiaries and prohibit US persons from engaging in financial transactions with them. Last week, the UK unleased strongest sanctions yet on Russia by also directly targeting both oil majors. The EU announced its 19th package against Moscow, including a ban on imports of Russian LNG, and targeting, energy, finance, trade, technology and diplomatic activities. Core bonds, and especially US Treasuries, lose ground today with the long end of the curve underperforming. Contrary to EMU inflation (headline near target), US CPI remains more elevated with recent dynamics pointing to a (re-)acceleration. The Bureau of Labour Statistics was asked to deliver the September US CPI report by tomorrow despite the ongoing government shutdown. Consensus expects headline CPI to rise from 2.9% Y/Y to 3.1% Y/Y which would be the highest level since May 2024. Core CPI is forecast stable at 3.1% Y/Y. Higher energy prices add to lingering upside inflation risks. Daily changes on the US yield curve currently range between +1.8 bps (2-yr) and +3.8 bps (30-yr). Tenors across the complete curve try to form a bottoming out pattern near YTD/Liberation Day lows. Only the US 30-yr yield remains above those reference levels. German yields are only around 1 bp higher stretching from the front to the very long end of the curve. The US dollar (EUR/USD 1.16) and stock markets (+0.2%) are going nowhere today. Secondly, there are gold and silver prices. Both precious metals went on a parabolic flight to all-time highs since early September, driven by inflation/FX debasement hedges, Fed rate cut bets and safe haven flows. Profit taking kicked in at the start of the week, taking both commodities around 10% off peak levels. The move hit a floor during yesterday’s US trading session with investors getting back in the trade. Finally, there’s a special mention to Arabica coffee futures which jumped to an all-time high. Apart from dry weather in top producer Brazil, markets were taken by surprise earlier this week by rapidly shrinking Brazilian stocks in exchange-monitored warehouses (lowest since October 2020). Trump’s high tariff policy, in effect against Brazil and threatened against Colombia, add to rising prices of that other black gold.
News & Views
The Central Bank of Turkey (CBRT) today cut the its policy rate by 1%, from 40.5% to 39.5%, further slowing the pace of easing after a 300 bps cut in July and a 250 bps step in September. The CBRT admits, that “while recent data suggest that demand conditions are at disinflationary levels, they also point to a slowdown in the disinflation process”. The underlying trend in inflation also increased in September and the “risks posed by recent price developments, particularly in food, to the disinflation process through inflation expectations and pricing behavior have become more pronounced”. Turkish inflation in September unexpectedly accelerated to 3.23% M/M and 33.29% Y/Y. The central bank will maintain a tight monetary policy stance until price stability is achieved. Apart from inflation, financial stability risks, including a weak currency related to domestic political uncertainty, also might cause to the CBRT to take a cautious approach on the pace of further easing. The Turkish lira today trades little changed holding near EUR/TRY 48.8, only a whisker away from the all-time record touched last week.
First ever Minutes of the (previous) Swiss National Bank (SNB) meeting stressed that the conditional inflation forecast is within the range of price stability over the entire forecast period. Medium and long-term inflation expectations are still well anchored. Higher US tariffs impact part of the economy and cause a lower 2026 GDP forecast. At present, there are hardly any signs of the negative effects spreading from the export-oriented industries to other parts of the economy. Monetary policy currently has an expansionary effect, but further easing is not appropriate. The summary didn’t elaborate on what might be needed to return to negative interest rates. FX comments were only descriptive in nature with the SNB active in the FX market as necessary. The Swiss franc (EUR/CHF 0.9245) trades slightly softer compared to near cycle peak levels touched earlier this week.
