Markets
The French OAT/swapspread keeps on rising with the credit risk gauge climbing to yet another record high of 146 bps today. Civil unrest and protests-turned-into-rioting over the weekend smashed confidence in Paris’ ability to deliver on long-overdue fiscal consolidation. As if doing just that with a minority government, in a highly fractured and polarized parliament, six months ahead of presidential elections wasn’t enough of a challenge. Since Friday, the tally (of a rising credit risk premium) stands at 20 bps. The 10-yr briefly topped 5% to hit the highest level in 24 years. Similar concerns push the Belgian spread higher too, from 73 bps on Friday to 90 bps today. The 10-yr yield for the first time since 2012 (excluding a benchmark quirk in January) now trades above Greece’s. Considering parliament is in recess next week, PM De Wever’s goal is to get a budget deal by tomorrow morning. Failing to do so brings the early November deadline (not a formal but a practical one) dangerously close. The negative correlation between rising spreads and the euro reasserts itself. The common currency loses ground, despite overall positive risk vibes (eg. EuroStoxx50 +1.4%). EUR/USD stabilizes around 1.123, which in itself is a poor performance given an overall soft US dollar. The trade-weighted DXY for example grinds lower for the third day this week to around 101.68. Higher-than-expected UK September inflation cements yesterday’s tentative break of EUR/GBP below 0.84. A November rate hike by the Bank of England is baked in, with three quarterly follow up moves. The duo is currently changing hands around 0.838, the lowest since May 2025 and one technical hurdle away (0.8374, 76.4% pound recovery on the 2024-2025 decline) from the 2024/2022 post-Brexit lows at 0.8225/0.8203. Cable (GBP/USD) eyes a return to north of 1.34 for the first time since mid-September.
Moves elsewhere stayed limited. Energy prices ease somewhat after the earlier increase to the recent highs lacked strength for a break. Brent oil trades around $108/b, Dutch TTF gas prices retreat to €85/MWh. To be sure, both are still lofty levels. Core bonds trade with little direction in the US (-1 bp) and Germany (marginal bear flattening). Gilts outperform Treasuries and Bunds though. UK yields are down 4-5 bps across the curve despite this morning’s CPI surprise. Failure to take out the recent highs triggered a technical move lower.
News & Views
Belgian consumer confidence deteriorated in October, with the National Bank of Belgium’s index declining from -10 to -13. Apart from the April 2025 reading (-14 following start of US trade war), it’s the weakest outcome since December 2022. The decline in confidence was reflected in all components in the indicator. At the macroeconomic level, consumers expect the general economic situation over the next twelve months to deteriorate further (-44 from -41). In addition, fears of a future increase in unemployment have resurfaced (19 from 16). At the personal level, households are highly concerned about the development of their financial situation over the coming twelve months (-7 from -2). For the third month in a row, they also expect to save less (18 from 20). On Friday, the NBB publishes its October business confidence indicator.
Reserve Bank of Australia Deputy Governor Hauser this morning admitted that the Australian inflation outlook looks worse than the August forecast. Upside risks to Q3 CPI seem to be a trigger for an RBA rate hike at the Nov 3 policy meeting. On the growth front, AI investment flows remain strong while consumption growth is more tepid. Hauser also believes that capacity pressures are probably higher than they saw until now. The market implied probability of a rate hike from 4.6% to 4.85% jumped from 30% to 67%, supporting AUD in the process. AUD/USD tested the 0.69 mark as recently as last week to currently bounce back to 0.7030. The Aussie sovereign yield curve bear flattened with yields adding up to 5 bps at the monetary-sensitive front end of the curve.
