Markets
The ECB’s October Bank Lending Survey reported a net 9% of euro area banks further tightened credit standards in Q3, in other words <55% reported a tightening while some 45% reported easing standards. The net result is second to 2026Q1 the most in several years. Standards were unchanged for consumer house loans but tightened more than banks themselves had expected in Q2 for consumer credit and other household lending. Net tightening for firms surpassed banks’ expectations in the previous survey round, owing to geopolitical uncertainty and energy developments. For the fourth quarter of 2026, banks expect credit standards to tighten further for firms and significantly so for both housing loans and consumer credit. From the demand perspective, the BLS reported an unexpected decrease for loans or credit lines to firms with the level of interest rates being the key reason, along with the above mentioned geopolitical and energy environment. Rates were also the key force behind a strong net decrease in loan demand for housing: the net 27% deepened from the 15% in Q2 and well above expectations set back then (12%). Additional reasons include falling consumer confidence and a worsening housing market. Demand for consumer credit and other lending fell only slightly. The survey results serve as the last input for the ECB on Thursday. They’ll be used as argument for keeping rates steady at 2.5%, no doubt. Most other new information, most notably energy price developments, since the September hike would actually favour another such move. Money markets currently discount a December hike for around 85%. We expect that to climb on what is likely going to be a hawkish pause on Thursday.
Awaiting the outcome and with an empty European eco calendar in between, German bunds trade with a small outperformance vs US Treasuries. Rates drop around 2-3 bps across the curve while rising marginally at the front in the US. The French 10-yr OAT/swapspread climbs a few bps again (150 bps) after a kneejerk decline yesterday following Moody’s unexpectedly backing off a credit rating downgrade. General risk sentiment is fairly constructive. The Eurostoxx50 strengthened by 0.5%. The Dow Jones on Wall Street loses 0.1%. The Nasdaq adds 0.6%. The Philly Semiconductor index gains for a third session straight, printing 2% higher today on cautiously optimistic tech sentiment. The euro continues to underperform with gravity pulling the EUR/USD (1.1146) ever closer to 1.1111/1.1113 support. The trade-weighted dollar index is up for a third session straight, taking out 102 again in the process. USD/JPY has rebounded from as low as 156 last Friday towards 158 in the same time span. Sterling enters tomorrow’s Autumn Budget near the multiyear highs against the euro around EUR/GBP 0.8367.
News & Views
Italian FM Giorgetti confirmed that the cabinet will approve next year’s budget tomorrow morning with “nearly all components ready”. The Italian budget deficit will drop below the 3% of GDP Maastricht threshold this year (2.9%) for the first time since the pandemic. And while a slight widening is foreseen in the following two years (rumoured 3.4% in 2027 & 3.2% in 2028), the EU fiscal adjustment path (slashing net expenditure growth) will be respected. The government takes into account a 1% growth rate for this year, 0.8% next year and 0.9% in 2028. Key budget measures include a defense spending cut, a financial sector levy and cost-of-living/energy relief.
Finnish President Stubb and Norwegian PM Støre published a joint statement after a call with Russian President Putin today. The aim of the call was to convey messages directly to Putin regarding future negotiations to help to end the war. The call was related to the upcoming meetings to be held in Abu Dhabi. The Kremlin and Ukraine earlier confirmed that talks are planned for the first half of November. The US is involved through envoy Witkoff and Jared Kushner. Putin “emphasized that achieving a just and long-term peace is possible only if the legitimate interests of the Russian Federation are fully and unconditionally taken into account,” according to the Kremlin.
