Sunrise Market Commentary

Markets

Equity markets had a rough closing session to the week with European indices ceding around 1% and key US gauges dropping by 1.1% (Dow) to 2.86% (Nasdaq). From a technical point of view, the Nasdaq crashed through first technical support around 26k. The end of July low (24425) is the next reference and 4% lower still compared with Friday’s closing level. The previous 2025 top at 24087 is the first real deal from a longer term perspective. Contagion to other markets was extremely limited last Friday with the trade-weighted dollar closing unchanged (EUR/USD holding below 1.12) and US Treasuries no longer profiting from haven demand. Daily changes on the US yield curve ranged between -2.3 bps (5-yr) and +0.8 bps (30-yr) with the belly of the curve outperforming the wings. Asian stock markets, including the tech-heavy South Korean bourse, suggest a calmer start to this week’s trading.

A contract-roll and reports that US President Trump prefers diplomacy over fresh military strikes to end the Middle East deadlock pull oil prices lower this morning with Brent crude currently trading below $110/b. European gas prices are also marginally softer (€102/MWh) following a WSJ report about a US push to resume Russian gas sales to Europe as part of negotiations aimed at securing an energy ceasefire ahead of the coming winter. It’s unclear how this plan fits with the European intention to phase out Russian purchases.

Developments regarding France (Fitch lowering outlook on A+ rating from stable to negative) and especially Belgium (budget talks collapsing; see News & Views) risk awakening the EMU credit risk narrative out of brief hibernation at the onset of European trading. The euro at least for now stands its ground in Asian trading, but risks being pulled towards the 1.1111 support again especially if steadier risk sentiment holds.

This week’s eco calendar is very interesting. The US manufacturing ISM kicks off monthly activity/labour market data today. Via US JOLTS (tomorrow), ADP employment and non-manufacturing ISM (Wednesday) it runs towards nonfarm payrolls on Friday. Plenty of Fed speakers flank the data releases with a December rate hike (75% discounted) being the market reference. The EMU eco calendar contains October CPI inflation (upside risks) and the ECB’s wage tracker on Wednesday, followed by the ECB’s annual conference on money markets on Thursday. Also in this case, the proposition to be challenged/confirmed is a December rate hike (80% discounted). Other highlights include tomorrow’s US midterms. Republicans are expected to lose their majority in Congress with Democrats possibly also flipping the Senate. US President Trump already touted he would become Mr. Veto in such scenario, maximizing his executive powers. From a market point of view, such blue sweep could help ease overall US risk premia across several asset classes. Plenty of central banks meet with rate hikes expected in Australia, the UK, Sweden and Czech Republic while Poland and Norway will likely leave things as they are.

News & Views

Belgian PM De Wever is expected to offer his resignation to the king after failing to find an agreement on what is considered his best and final budget offer, financial newspaper De Tijd reported overnight citing unnamed sources. The socialists from Vooruit said nothing in the latest proposal addresses their concern, labeling it as unbalanced as before. Vooruit seeks, amongst others, savings in health care and pensions to be reduced and compensated for by €1.5bn in additional taxes borne by the most wealthy. Les Engagés more recently joined Vooruit’s position. The king isn’t expected to accept De Wever’s resignation and instead implore him to continue negotiations. De Wever theoretically has time until Tuesday. Absent a last-minute (but unlikely) deal, the Belgian government will kick off 2027 with a provisional budget (one-twelfth system), something De Wever ruled out doing.

The zloty weakened to a three-year low in volatile trading this morning. EUR/PLN shot towards 4.437 before paring gains to 4.41 currently. PLN is in the crosshairs over rising social tensions that erupted in at times violent protests this weekend. These followed Polish PM Tusk’s pledge to shake up the country’s top court, the Constitutional Tribunal. Tusk said its current format isn’t independent after having been stacked with political appointees during the opposition’s (which included the PiS) eight-year tenure. The EU in 2021 ruled that the tribunal wasn’t independent and impartial. The top court is currently paralyzed. Parliament has filled vacancies for most of the judges but the tribunal chief won’t recognize them while the Polish president refuses to accept their oaths of office. Both carry the PiS sigil.