Sunrise Market Commentary

Markets

• Markets largely erased yesterday’s modest losses, a session marked by broad-based but limited directional moves. Core bonds eked out a small win with yields easing by less than 2 bps in Europe and the US, both at the front and long end of respective curves. We only start to see tentative signs of (further) consolidation, which we think could develop in the wake of the recent sell-off that pushed yields to (very) long term highs. Equities meanwhile struggle for upside momentum. The likes of the Nasdaq tested but failed to force a new intraday high. Main US indices eventually finished with marginal losses. European stock markets were in the red throughout the session, dropping as much as 0.9% (Eurostoxx50). High beta/risky currencies underperformed too even as the move stayed well within established trading ranges. USD/JPY for example tested, without real conviction, the YtD top at 162.78. AUD/USD slipped the most in the G10 universe, down 0.6%. Both are supportive of our overall preference for a stronger dollar, this time in an environment of a generally more risk-off context rather than the interest rate differential or safe haven story that prevailed for most of the year. We also keep a close eye on gold, which took a hit yesterday with -3.5% being its biggest decline since April 2013 (when prices more than halved in just two trading days). It’s digesting September/October’s incredible, parabolic ascent with the $4000/ounce support area and 50-day moving average the next, logical targets from a technical point of view.
• Today’s eco calendar brings the US CPI inflation release, which was delayed because of the government shutdown earlier this month. Headline is expected to rise from 2.9% Y/Y to 3.1%, mainly on unfavourable base effects, while the M/M-reading is forecast at 0.4%. Core prices are expected unchanged at 3.1% Y/Y and 0.3% M/M. Risks skew to the upside given the energy price shock, which should fully show up in the numbers for the first time. At the same time, July/August prints already showed that pass-through from higher energy costs to the broader basket remained contained, something we expect to be confirmed again today. With the Fed widely expected to cut rates by 25 bps at next week’s meeting, today’s inflation print is unlikely to materially alter that call barring a true outlier. EUR/USD struggles to make any headway with 1.12 support, but recovers slightly from yesterday’s intraday low at 1.1538 to currently 1.1570. EUR/GBP builds on a short-term bottoming out process from the YtD low near 0.8450, now trading around 0.848.

News & Views

• Czech industrial production rose at a slower pace in August, up 2.1% Y/Y compared to a (revised) 5% increase in July. Momentum slowed to -0.4% M/M, after rising 1.5% the month before. Construction output growth accelerated though, from 2.4% to 3.4% Y/Y. Czech foreign trade meanwhile recorded a surplus of CZK16.5bn, little changed from July’s CZK16.1bn. Both exports (7% Y/Y) and imports (6.9%) grew at a similar pace.
• Hungary’s central bank governor Varga said the country could adopt the euro by 2032 at the earliest, speaking at an event in Budapest. He reiterated that joining the eurozone remains a strategic, long-term goal, but that the economy first needs to show durable convergence, both in nominal and real terms, before a credible target date can be set. The central bank’s own roadmap, published last year, pointed to the early 2030s as a realistic window, contingent on continued disinflation and fiscal consolidation.