Markets
Some last-minute economic data including stronger-than-expected Q3 GDP and national inflation numbers (see below) ahead of the ECB policy meeting highlighted the logic of the outcome. The deposit rate was kept unchanged at 2% today. That unanimously decided status quo was based on the fact that inflation, including underlying gauges, remains close to the 2% medium-term target and developed in line with the September outlook. There was no risk balance offered. But based on the opposing arguments, including a return of supply chain bottlenecks (hello, 2020), spelled out, we assume the risks are considered being balanced. A robust labour market and earlier monetary easing amongst others keeps the economy growing against the backdrop of a challenging global environment. The ECB chair, citing today’s GDP release, added she wouldn’t worry too much about growth at this point in time. Some of the downside risks mitigated, she said, following the trade deal sealed with the US, the ceasefire in the middle east and the progress in China-US relations announced this morning. That assessment comes after Lagarde in September said risks to the economy “become more balanced”. ECB Lagarde singled out (digital) services a key engine for growth. Manufacturing was instead held back by higher tariffs and a stronger euro, denting external demand. The ECB expects this divergence with solid internal demand to persist. As usual, Lagarde kept the cards close to her chest in terms of what to expect from policy going forward. The ECB remains in a good place but it’s not a fixed good place. Decisions will be made on meeting-by-meeting basis and take into account incoming economic and financial data. Given that neither the risks to nor the outlook of inflation had changed and with the ECB becoming less negative on growth risks, a 2% deposit rate for the months ahead remains our base scenario. If anything, the bar for rate cuts after today shifted higher. The money market implied probability barely changed and remains well below 50%. European swap yields retain most of the earlier rise with net daily changes varying between +1 bp and +2 bps. Treasury yields stabilize after the Fed-driven 10 bps jump yesterday. The euro loses some ground against the dollar in a move more inspired by the risk-off mood than anything else. EUR/USD eases to below 1.16 but in technically irrelevant trading. A disappointing JPY in the wake of the Bank of Japan’s unchanged rates decision this morning underperforms global peers. USD/JPY surges to a 9-month high north of 154. Stock markets slip to around 1% in the US (Nasdaq) with investors taking some chips off the table after the 5-day 5% rally.
News & Views
Belgian inflation rose by 0.36% M/M in October after two monthly declines in August and September. The most significant price increases in October were registered for holiday villages, clothing, private rents, participation in recreational sporting services, plane tickets, restaurants and cafés and personal care. Hotel rooms, natural gas, electricity and package holidays had a downward effect. Annual inflation slowed from 2.1% Y/Y to 2% and is actually hovering sideways between 1.9% and 2.1% since May. Core inflation was unchanged at 2.6% Y/Y. Services inflation increased from 3.5% to 3.6% while rent inflation was unchanged at 4%. Food inflation slowed from 3.3% to 2.7% and energy dropped by 1.9% Y/Y from -1.5% Y/Y in September. Other European countries reporting inflation data today were Spain and Germany. Spanish inflation showed an unexpected acceleration in harmonized CPI from 0.2% M/M to 0.5% M/M (3.2% Y/Y from 3%; core 2.5% from 2.4%). German inflation also rose more than expected (0.3% M/M & 2.3% Y/Y) suggesting upside risks to tomorrow’s EMU print. Consensus expects 0.2% M/M and 2.1% Y/Y.
Czech GDP grew by 0.7% Q/Q in Q3 according to the preliminary estimate with year-on-year growth of 2.7% being mainly driven by final consumption expenditure of households and gross capital formation. External demand also helped quarterly growth. Both significantly beat consensus (0.3% Q/Q & 2.3% Y/Y). Full details will only be released by the end of the month (Nov 28). The Hungarian statistical office also published a first indication for Q3 growth. It disappointed with no-growth on a quarterly basis and GDP rising by 0.6% Y/Y.
 ahead of the ECB policy meeting highlighted the logic of the outcome. The deposit rate was kept unchanged at 2% today. That unanimously decided status quo was based on the fact that inflation, including underlying gauges, remains close to the 2% medium-term target and developed in line with the September outlook.){kind=link}