Markets
It sounds almost too good to be true but on the very day of high-stakes US midterms news breaks out that the US had approved a new draft MoU presented by the Qatari delegation. Neither the US nor Iran has confirmed the report so far with both countries reportedly discussing making a simultaneous announcement. Details are scarce and, in any case, need to be taken cautiously but the fresh MoU is reported to contain mutual concessions regarding the nuclear topic and the status of frozen Iranian assets. The previous memorandum dates to June 2026 but later unraveled amid renewed military escalations and naval blockades. The news follows reports yesterday that US president Trump would favour returning to diplomacy instead of new attacks to end the Middle East conflict. It prompted a sharp decline in Brent (helped by a contract-roll) from $118 on Friday to <$105 yesterday. The downleg extends towards the $100 barrier today before Brent pared losses to some extent ($103.8). Gas prices join by collapsing to €86/MWh (Dutch TTF) but, as in oil, recovered back to €92. Prices stood at €104 end last week. Core bonds temporarily erased earlier losses. Treasuries are now back at underperforming Bunds with yields adding 1-2 bps across the curve and German yields rising 2 bps in the 10-30yr bucket. European stock markets and US futures bounced higher but intraday price movement suggests cautiousness (rightly so) in tapping into such unconfirmed, headline driven risk-on. For the EuroStoxx50 it merely means trading unchanged instead of with minor losses. Wall Street enters the midterms mixed. The Dow Jones loses 0.7%, the Nasdaq adds 0.8%. The euro once again tried to take out the EUR/USD 1.12 but the move failed before it even got traction. DXY is little changed around 101.8.
US midterms are up today. Democrats are favoured to take over the House and hope to get the full sweep by flipping the Senate as well. Republicans’ slim majority in the House is highly likely to become a comfortable majority for Democrats. They only need a net gain of three seats. Winning the House allows them to block legislation backed by the US President and install oversight investigations (which ultimately and potentially could end up with impeachment procedures). The path to victory in the Senate is much narrower with Democrats needing a net gain of 4 seats. To do so, they’ll need to take over traditional Republican strongholds like Texas or Alaska. While the outcome of the House race could be clear rather fast, it might take weeks to get final results for the Senate balance. A toss-up state like Alaska might take two weeks to call a winner. If Democrats also get their hands on the Senate, they’ll have veto power over high-level executive and judicial appointments. From a market point of view, a Democratic sweep can help lower US credit risk premia across asset classes.
News & Views
Swiss inflation rose faster than expected in October. The 0.2% monthly pace lifted a Y/Y figure from 1% to 1.5%, the fastest since December 2023 and significantly quicker than 1.2% consensus estimate. Details showed especially prices from imported products pushing inflation up, rising by 1.2% M/M and 3.7% Y/Y. Energy is the main culprit with price of petroleum products up 6.4% M/M and 40.3% Y/Y. Domestic prices fell by 0.1% M/M to be up 0.8% Y/Y. Core inflation excluding fresh and seasonal products, energy and fuel, rose by 0.2% M/M and 0.5% Y/Y. Goods inflation came in at 0.8% M/M and 1.9% Y/Y while services inflation recorded a 0.2% monthly drop to be up 1.2% Y/Y. Today’s soft core CPI keeps the unchanged SNB policy rate narrative (at 0%) intact. The Swiss franc treads water today after a strong month of October driven by rising EMU credit risk premia and volatile/weak risk sentiment.
The OECD published a lofty report on Belgium today. It’s an update of its Economic Surveys series which was previously released in September 2024. One of the key messages is that despite existing consolidation plans, high public debt and a high deficit are projected to continue rising, highlighting the urgent need to strengthen fiscal sustainability. Frontloading consolidation measures, primarily through containing spending growth, improving tax efficiency, and reforming national and regional budgetary frameworks will be key to achieving this goal. The OECD expects the budget deficit to remain larger than 5% of GDP both this year and next with the debt ratio picking up from 109% at the end of 2025 to 113% by the end of 2027. GDP growth is projected at 0.7% this year and 1% in 2026.
