Markets
A chronicle of a death foretold. The Belgian 10-yr OLO-swapspread touched 100 bps today (up from 94 bps close last Friday) after multiannual budget talks collapsed this weekend. PM De Wever went to the King to offer his resignation. He didn’t accept the offer (yet) and called on coalition partners to compromise. From tomorrow, the King will consult with party leaders from the ruling Arizona-coalition. On Friday, he’ll meet again with PM De Wever. The tone in articles by most political commentators today switched from hope on a way out of the budget deadlock to the build-up to early elections. Belgian OLOs today significantly outperform other EMU debt. The French 10-yr swapspread cedes 2 bps even as rating agency Fitch last Friday unexpectedly revised the stable outlook on the A+ credit rating to negative. The 10-yr BTP-swapspread even declines by 5 bps.
The single currency is unnerved by the Belgian (under)performance today. First because of a lack of contagion. Second and foremost because of today’s significant decline in energy prices. Brent crude dropped from a $117.64/b close on Friday to currently $106.4 (contract-roll in play as well). European gas prices fell from €104/MWh to €96/MWh. Reports that US President Trump prefers the path of diplomacy to get out of the Iranian quagmire over fresh military action relieve pressure. Simultaneously, the WSJ ran an article on 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. EUR/USD moves from a start at 1.1160 to currently 1.1220. Core bond yield curves show a modest bull flattening in the US and Europe. The front end of the curve barely budges with long term yield down 2.5 bps (Germany) to 4 bps (US). Central bank comments include ECB Kazimir who said that last week’s pause in rates was not a finish line. He believes that weaker growth may not cool inflation on its own. Interestingly, he suggested that markets may still underestimate what’s needed. EMU money markets recently dialed down tightening bets to somewhere between two or three (peak rate of 3%-3.25%). UK Gilts outperform with UK yields down 7 to 9 bps across the curve.
The October US manufacturing ISM kicked off this week’s data avalanche. The ISM beat consensus expectations of stabilization to rise from 54.5 to 55.5 (2nd best since May 2022). Details showed new orders still growing at a good pace (55.5 from 55.3) with firms hiring (employment 52.4 from 52.7) to follow accelerating production levels (59 from 56.7). Supplier deliveries remain stretched (59.1 from 59) with price paid rising strongly though less fierce than last month (75.2 from 77.9). Overall, data continue to support the case of a December Fed rate hike.
News & Views
ECB research found that, so far, the rise in food repricing momentum by European supermarkets in response to the Middle East energy shock is weaker than it was in 2022 after Russia’s invasion of Ukraine. The Daily Price Dataset (DPD) is a tool made by the ECB in 2022 to follow supermarket price developments as they unfold. Tracking them was and is crucial because when an energy price shock hits the economy, food prices are among the first to rise, with immediate consequences for consumers. According to the researchers, the DPD showed the frequency of food price increases rising in March 2026, shortly after the war erupted. But that increase was much smaller than during the 2022 shock. The gap between the frequency of price increases and decreases is small and smaller than in 2022. The average size of price increases was similar to the episode of more than four years ago. The researchers also found that after an initial rise of repricing frequency across individual food categories, that frequency did not rise and widen sequentially as it did in 2022. They conclude that “Following the 2026 energy shock, we find little evidence so far of a persistent change in how often retailers reprice food items, in contrast to 2022.”
Strikes are spreading in Germany’s metal and electrical engineering industry. Workers in several companies have downed tools today as the IG Metall union ups pressure in a pay dispute. The country’s largest industrial union, representing around 3.7 mln employees, is demanding a 5% wage increase from November, along with other demands such as measures to safeguard jobs and production sites. The strikes follow a second offer by employers which foresaw a one-off payment of 1% in July next year and a 1.3% wage increase in July 2028. IG Metall dismissed the offer as a pay cut in real terms.
 after multiannual budget talks collapsed this weekend. PM De Wever went to the King to offer his resignation. He didn’t accept the offer (yet) and called on coalition partners to compromise.){kind=link}