Markets
- European markets look vulnerable at the start of the new week. The common currency falls victim to the political and fiscal woes. The French unsustainable finances and resulting higher long-term bond yields quickly left traces on other highly indebted countries such as Italy, Belgium and Greece in an early echo to the 2010-2012 debt crisis. The likes of Spain, which was front and center back then, had bucked the trend. But speculation of snap elections ended that towards the end of the week. PM Sánchez today announced an early ballot by November 29 for the eurozone’s fourth largest economy, adding a fresh layer of political uncertainty. EUR/USD in Asian dealings this morning fell as low as 1.1161 before recovering somewhat. The couple is currently changing hands around the 1.12 big figure. EUR weakness also showed in EUR/GBP, which tumbled just shy of the YtD low at 0.8455 and is now trading at 0.847. EUR/CHF serves perhaps as the best European risk gauge. The couple dropped to 0.927 but then clawed back to 0.931. The bounce from the euro’s intraday lows coincided with credit risk premia vs swap in all of the above mentioned countries narrowing a tad in a daily perspective. It’s highly unlikely, however, that this repositioning has already run its course. The 2027 (and in some cases multiannual, eg. Belgium) budgets are in the process of being made, keeping the topic a live one for the remainder of the year and perhaps even through the French presidential elections. Moves in core bond markets stayed more or less muted. It wasn’t until the arrival of first US investors that some selling action happened. Bund yields lose 1 bp at the front while adding 3 at the longest maturity. Front end outperformance takes place as euro area money markets trim bets further on an October rate hike (10% implied probability). They reckon the ECB will want to tread carefully with rate hikes, taking the fragile sovereign environment into account. That said, the central bank does have a backstop mechanism for disorderly and unwarranted by country-specific fundamentals spread widening, the Transmission Protection Instrument, at its disposal. Being in the Excessive Deficit Procedure, it’s unclear whether France would be eligible for TPI in case of a disorderly sell-off. US rates march around 4 bps in the 30-yr tenor while investors await the release of the September services ISM. European stock markets erased earlier losses and now trade with minor gains. The EuroStoxx50 remains close to the key 6200 support however.
- The US September services ISM came in close to expectations. The headline printed at 54.9, slightly lower than August’s 55.4 but virtually spot on the 55 expected. Details were strong with new orders rising at a rapid pace (59.8) and the employment subindex (narrowly) making it back above 50 for the first time since June. Price pressures build. The index rises further to its highest level since July 2022. US yields and the dollar are little changed.
News & Views
- According to a letter sent to European Commission President von der Leyen, seen by Bloomberg News, Germany and France are urging the EU to adopt new powers that would enable it to cut off access to its single market if nations destabilize trade relations. The issue will be discussed at an EU Summit next week and seems to be directed at finding ways to rebalance the trade relationship with China. The letter also calls for an instrument that would force Europe to reduce various supply chain dependencies on foreign countries.
- Sweden’s services sector gained further momentum in September, with the Services PMI rising to 57.4 from 56 in August, its highest level since November 2025. New orders were the main driver of the increase, while business activity remained firmly in expansion territory. However, employment remained weak, with the jobs sub-index staying below the 50 threshold for a twelfth consecutive month. Input cost pressures also intensified, as the supplier price index jumped to 73.3 from 62.1. Last week’s released manufacturing PMI rose to 58.1 in September from 56.3, reaching a three-month high. The increase was also broad-based, led by stronger new orders, higher output and longer supplier delivery times, although employment continued to lag. Input cost pressures also strengthened further, with the raw materials and intermediate goods price index climbing to 77.6 from 75.7, its highest level since June. Swedbank, responsible for the release, said the data point to a clear strengthening in Swedish industry, supported by a more favorable global economic backdrop, but warned that rising costs could squeeze margins and feed through to producer and consumer prices. The broader PMI Composite index rose to 57.6 from 56.1, indicating that the recovery across Sweden’s business sector broadened during the third quarter.
