Markets
The US economy is booming. Growth is accelerating, from 2.2% in Q2 (annualized) to 3.4% in Q3, beating the 3.2% consensus estimate and the fastest pace in a year. Net exports weighed the number down by 3.32 ppts. Surging imports (-2.64 ppts, +26.4% Q/Qa) of goods needed in the AI buildout are the reason. Inventory building countered the net export drag by 1.6 ppts. Fixed investment jumped 9.4%. Within that category, (AI) equipment soared by 20.9% in the biggest growth contribution (1.16 ppts) ever, barring the pandemic rebound. Personal consumption rose at a solid 3.8%, the same as in Q2 and accounting for 2.5 ppts. Government consumption rose 5.3%, the most in three years. Strong economic activity is accompanied by ongoing low jobless claims (lowest in a generation, per Warsh) and mounting inflation. PCE deflator rose 0.5% m/m to 3.6% (from 3.4%). Core PCE added 0.3% to be up 3.1%. Both were as expected, but only thanks to rounding rules. Services PCE (2.4%) picked up to the quickest pace since December 2024. The story for the so-called supercore PCE (services ex. energy and housing) is the same. We believe that should the Fed have these numbers before its meeting yesterday, the outcome might have been a different one. US rates slipped a few bps in the wake of the data, probably because of PCE deflators avoiding an upside surprise. Losses deepened in early US dealings with an Alphabet-led tech sell-off prompting haven flows. Net daily changes vary between -3.7 and 5.5 bps in bull steepening.
ECB rates as expected stayed unchanged (2.5%). Changes to the statement did trigger some bull flattening and euro weakness prior to now-outgoing president Lagarde’s presser. It mentioned rising energy prices posing upside inflation risks, but that underlying inflation had been broadly stable so far and that wages aren’t showing a material response so far. It also took notice of financing conditions having tightened since the last meeting, which is likely to weigh on growth and inflation (lowering the need for immediate ECB action). Growth risks are judged tilted to the downside. Lagarde said there are direct effects of higher energy prices, increased indirect effects but that they are not seeing second-round effects (through wages) yet. She noted two key changes from September: energy prices (including petrol, gas …) have risen significantly and the increase of the cost of long term financing (+35 bps since the cut-off date for the September forecasts). Both combined and given the uncertainty, Lagarde said there was unanimity for today’s hold even as a hike was discussed. Adding to that case and on a “why wait” question similar to the Fed yesterday, Lagarde summed up the additional eco data that will be available by December. A measured approach for now remains the right one and she repeated that the travel of direction is clear in any case. A question related to France/spreads was well prepared in advance with general comments. She referred to TPI that can be used if necessary. EUR/USD recovered from the day’s lows just above 1.11 to 1.115 during the press conference. The picture remains weak nonetheless. German rates pared some of the 6-7 bps losses to trade 4 bps lower at the front and 2 bps higher at the long end of the curve.
News & Views
Belgian headline inflation accelerated to 0.91% M/M in October, lifting the Y/Y number to 5.26% from 4.69%. It’s the fastest pace since April 2023. The most significant price increases in October were registered for natural gas, electricity, private rents, domestic heating oil, higher education enrolment fees, clothes, holiday villages and camping sites and plane tickets. However, package holidays and hotel rooms have had a decreasing effect on the index. Core inflation slowed from 3% Y/Y to 2.8%. Services inflation went from 5.25% to 4.73%. Rent inflation increased from 2.94% to 3.07%. Inflation for food products (including alcoholic beverages) stood at -0.18% this month, compared to -0.28% last month. Energy inflation surged from 24.37% to 33.22%. In a separate release, the National Bank of Belgium estimated third quarter GDP growth at 0.3% (0.7% Y/Y). The supply-side breakdown showed industry (+0.1% Q/Q), construction (+0.2%) and services (+0.4%) all positively contributing.
 to 3.4% in Q3, beating the 3.2% consensus estimate and the fastest pace in a year. Net exports weighed the number down by 3.32 ppts. Surging imports (-2.64 ppts, +26.4% Q/Qa) of goods needed in the AI buildout are the reason. Inventory building countered the net export drag by 1.6 ppts.){kind=link}