Markets
Yesterday’s Fed decision left markets with some kind of ‘glass half full, glass halve empty’ dichotomy. As such, the Fed message should be supportive for overall market/risk sentiment. Some optimists even might have discerned some Goldilocks features from a scenario that includes higher growth, easing inflationary pressures and the Fed Chair elaborating on solid productivity growth. The Fed engaging in ‘technical measures’ to guarantee ample liquidity also should give comfort. Still, this good news occurs in an environment where most Fed governors feel their room of maneuver restrained by upside inflation risks and at the same time developing labour market weakness. With policy rate entering ‘within the range of plausible neutral estimates’ any further easing can’t occur on some kind of ‘autopilot’. The end of the cycle is coming close and further steps will have to finely checked against incoming data and the perceived risk balance. Short-term US money/interest rate markets perfectly capture this balanced set-up. Money markets continue to see the 3% neutral area as the bottom of current cycle. Highly negative growth/labour market news is needed for a break below that level. The 2-y yield in the run-up to yesterday’s Fed meeting moved to the top of the 3.40/3.65% trading range. Despite the Fed Chair (and the dots) signaling a high bar for further easing, a topside break was still was rejected. At 3.51% the 2-y yield now again trades perfectly in the middle of that range, awaiting upcoming data evidence to help markets make up there mind on the pace at which the Fed might return to that 3% neutral level. In this respect, jobless claims jumped to 236k from an extremely low 192k the previous week. The biggest move since the start of the pandemic is probably affected by statistical noise due to Thanksgiving. Whatever, US yields for now easily maintain/extend yesterday’s decline with changes between -5 bps (5-y) and -3.5 bps (30-y & 2-y). EMU yields are taking a breather after the recent sharp rise. German yields are changing less than 2 bp across the curve. European equity markets initially failed to join yesterday’s positive reaction in the US post-Fed. Disappointing Oracle sales and high capital spending rekindled investor concerns on AI-related valuations. However, some dip-buying soon kicked in. The Eurostoxx 50 gains about 0.6% and trades less than 1.5% from its al time record. The S&P 500 opens 0.35% in red, but futures are well of the intraday lows.
Most significant follow-through price action post-Fed occurs in the dollar. After a setback yesterday, DXY (at 98.33) dropped below first minor support at 98.76/98.57 (recent low/Oct 28 low). EUR/USD in a similar move finally captures the 1.17 big figure. USD/JPY drops to 155.15 area (from 156), in a pure dollar move. EUR/JPY (182.15) holds near the all-time top. The Aussie dollar this time lags the rally in non-USD currencies, after a strong RBA driven rally of late and weaker than expected labour market data published this morning.’
News & Views
The Hungarian forint trades volatile today with Hungarian bonds dropping (bear steepening up to +7 bps at 10-yr) on reports that PM Orban is playing with the idea of becoming President. Hungarian parliament yesterday approved a law making it harder for lawmakers to remove a president from the post in the future. In the run-up to pivotal April parliamentary elections, which Fidesz risks losing for the first time since returning to power in 2010, parliament could exploit its supermajority to turn the current ceremonial presidential role into something way more powerful. The current presidential term only expires in 2029 but president Sulyok is a known Fidesz ally.
The Swiss National Bank left its policy rate unchanged at 0%. The expansionary policy helps ensure a slow rise in inflation in coming quarters. The central bank’s conditional (stable rates over policy horizon) inflation forecast puts average annual inflation at 0.2% for this year, 0.3% for next and 0.6% for 2027; slightly lower compared with September (0.5% for 2026 & 0.7% for 2027) and within the 0%-2% target zone. Swiss GDP contracted in the third quarter, mainly because of the pharmaceuticals industry, which continued to see countermoves following an extremely strong Q1 in anticipation of possible US tariffs. The economic outlook for has improved slightly due to the lower US tariffs and somewhat better developments globally. For 2025 as a whole, SNB expects GDP growth of just under 1.5%. For 2026, they expect growth of around 1%. Unemployment is likely to continue to rise somewhat. As usual, the SNB mentions a willingness to be active in the FX market as necessary. The Swiss franc slightly outperforms today with EUR/CHF trading at 0.9330 from a start at 0.9360.
