Markets
On Monday, the US Senate approved a bill to end the shutdown of the US government and this is expected to be rubberstamped by the House of Representatives today. The new bill will fund the US government through January 30. Senate Republicans agreed on a vote to healthcare subsidies that Democrats wanted to be prolonged, but there is no guarantee that this will be approved. After some volatility last week, (US) equity markets saw the end of the shutdown as a good enough reason to resume a buy-the-dip strategy. In a session with US bond markets closed for Veteran’s Day, the Dow Jones yesterday closed at a record (+1.18%). The Nasdaq jumped higher on Monday, but couldn’t build on that momentum yesterday (-0.25%), suggesting high valuations on some AI-related sectors are a source of market caution. US yields this morning open 2-3 bps lower across the board. US fixed income futures yesterday jumped as ADP reported that the US private sector lost 11 250 jobs/week in the four weeks ended Oct 25, suggesting a cooling in the labour market. The reaction yesterday suggests markets see the restart of publishing US data as raising chances for a follow-up Fed rate cut at the Decr 10 meeting. Still, recent Fed comments suggest highly divided views within the FOMC, with a several members staying cautious to ‘commit’ to further easing with inflation still above target and the Fed policy come closer to a neutral level. The risk-on and ADP data, tempered last week’s USD bid. DXY closed at 99.43, to be compared with a 100.36 top last week. EUR/USD extends its rebound and tested the 1.16 big figure yesterday (close 1.1582). The yen underperforms with USD/JPY (154.65 area) testing the highest levels since February. Sterling is also still fighting an uphill battle. Labour market data published yesterday showed the unemployment rate in September rising to 5% (from 4.8%). October job growth (-32k) and earnings data were also softer than expected, reinforcing the case for a December BoE rate cut. The UK yield curve bull steepened with yields declining between 8.3 bps (2-y) and 6.7 bps (30-y). EUR/GBP returned north of 0.88. Last week’s top (0.8829, weakest level of sterling against the euro since April 2023) is again within reach.
Risk sentiment in Asia remains positive this morning. There are only second tier eco data scheduled for release today. As the US House today is expected to approve the spending bill to reopen the government, markets will look forward to the restart of the US data publication over the coming week(s). For now, it’s far from sure this process will provide a clear view to (re)assess Fed policy in the run-up to the December Fed meeting. Interesting to see how far current risk rebound goes. For, now dollar losses at least stay very modest.
News & Views
The Hungarian Economy Ministry yesterday raised deficit targets for both this year and next. Minister of National Economy Nagy said that they’ll keep the deficit stable at 2024 levels instead of reducing it. This means a 5% of GDP shortage for both 2025 and 2026. Originally, the government planned to reduce it to 3.7% of GDP both this year (later revised to 4.1%) and in 2026 (adopted this summer, but later on watered down to 4%). To finance the shortfall, the government will freeze all of the HUF192bn in reserves included in next year’s budget and will collect HUF370bn instead of HUF185bn via an extra profit tax on banks. PM Orban also suggested that he could activate the “financial shield” agreed with US president Trump to protect the economy from speculative attacks. Plans to issue foreign currency (USD?) bonds early next year could be seen in that direction. The Hungarian forint lost ground yesterday, with EUR/HUF coming off a YtD low at 383.50 to close around 385. The Hungarian bond yield curve bear steepened with yield rising by 3.5 bps (2-yr) to 10 bps (30-yr). Hungarian risk premia rise with markets keeping a close eye on credit rating verdicts by Moody’s (Nov 28; Baa2 with negative outlook), Fitch (Dec 5; BBB with stable outlook) and especially S&P (date unknown; BBB- with negative outlook).
The International Energy Agency published its World Energy Outlook today. It added/re-introduced a new scenario (“Current Policies scenario) in which global oil and gas demand will rise for the next 25 years as governments’ commitment to climate goals are fading. Since 2020, the IEA’s modelling all assumed that fossil fuel consumption would peak this decade. A huge growth in electricity demand is central in all of the IEA’s scenario’s, rising by 40%-50% by 2035 with demand coming from the increasing penetration of white goods and air conditioners, shift to electric cars as well as advanced manufacturing and data centers.
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