Markets
Global markets developed as one could expect with US markets closed for Thanksgiving. A lack of guidance from US markets and too little ‘new news’ on this side of the Atlantic resulted in technical, order-driven trading. Minutes of the October 29-30 ECB policy meeting didn’t bring much directional insights. The ECB looks very happy to hold on to a status quo scenario. Minor short-term shocks/surprises, if they were to occur, probably won’t steer the policy rate away from the 2% equilibrium level. Inflation has moved close to 2%. A technical dip is possible in 2026, but inflation is expected to stay close to target over the policy horizon. On activity, the ECB assesses that the economy continues to grow despite the challenging global environment. The robust labour market, solid private sector balance sheets and past interest rate cuts are mentioned as sources of resilience. Even a rather elevated level of uncertainty “justifies keeping interest rates unchanged. Maintaining policy rates at their current levels would allow for more information to become available”. “The current level of policy rates should be seen as sufficiently robust for managing shocks, in view of the two-sided inflation risks and taking into account a broad range of possible scenarios”. As said, the bar to deviate from the current 2% level remains (very) high. EMU/German yields understandably are going nowhere, changing 1 bp or less across the curve. After this week’s rebound, European equites held on to recent gains, but without US guidance, momentum dwindled (Eurostoxx 50 perfectly unchanged). Similar story on FX, EUR/USD yesterday/this morning tried a test of the 1.16 big figure, but in the end the status quo. (EUR/USD 1.159) was unavoidable. In the UK, there was also no ‘new news’, but investors had time to give a second look at yesterday’s UK budget announcement. This second opinion at least doesn’t lead to follow-through market enthusiasm. Yesterday’s easing in UK risk premia already came to a standstill. The higher budgetary buffer provides some breathing space, but doesn’t profoundly improve the overall picture, as illustrated by the decline in trend growth from the OBR. UK yields add 1.5-3.5 bps across the curve. It will be interesting to see first comments from the BoE post-budget. A softer inflation due to some subsidies/price caps shouldn’t change the BoE’s LT view on the neutral policy rate, but helps the short term narrative to err on the dovish side. Sterling also runs into resistance after yesterday’s rebound. At EUR/GBP 0.876, the pair still struggles to clear first minor support (uptrend line since June).
News & Views
Belgian headline inflation accelerated from 0.36% M/M in October to 0.56% M/M in November. The most significant price increases last month were registered for travels abroad and city trips (+11.7%), domestic appliances and repairs (+9.1%), motor fuels (+1.9%), information processing equipment (+14.6%), electricity (+1.4%), smartphones (+18.2%) as well as bread and cereals (+0.8%). However, plane tickets (-13.8%), holiday villages (-5%) and natural gas (-0.8%) have had a decreasing effect on the index. Annual inflation increased from 2% to 2.4%, the highest level since April. Core inflation accelerated from 2.58% Y/Y to 3.1% Y/Y. Energy prices fell by 2.15% Y/Y (from -1.85%). Rent inflation was broadly stable at 3.91% Y/Y while food price inflation went up from 2.68% to 3%. Services inflation surged from 3.62% to 4.52%.
The European Commission’s EMU economic confidence indicator remained broadly stable (97 from 96.8) in November. Details showed employment expectations improving, but remaining below the long term average (98.8 vs 100). On a sectoral level, more upbeat confidence in services (broad-based), retail trade (significantly better backward looking view) and construction (employment) was almost entirely offset by lower confidence in industry. Industrial managers’ confidence worsened significantly when it comes to product expectations and the current overall level of order books (both intern & extern). Selling price expectations picked up in all four business sectors, exceeding long-term average in all of them and most so in services. EC consumer confidence was confirmed at -14.2.
