Markets
The exact policy implications of the Democratic congressional sweep are yet unclear but investors’ first reaction is one of relief. European stock markets rally 2%. One explaining factor is probably reduced policy risk. US President Trump’s erratic (trade) policy kept casting a dark cloud over European companies. Markets now assume some kind of congressional check on the president for the remainder of his tenure. Wall Street also opens higher with 2% gains across the board. That hides an intraday tech/Nasdaq recovery (in futures) of more than 3%. The jury remains out whether the October AI correction fits in a sell-the-rumour, buy-the-fact narrative. Treasury yields drop between 2.7-5.2 bps with the belly outperforming the wings, supported by what is expected to be a fiscal deadlock in the coming two years. Long-term yields very briefly spiked on the details of Treasury’s quarterly refunding statement. It kept auction sizes for the 10-30yr bucket unchanged. Investors had expected a shift to shorter-term maturities and T Bills. A tweak in guidance, however, opened the door to auction size changes next year. The US dollar faces selling pressure with lower energy/oil prices being an additional drag. Brent is nearing the $100 barrier with hopes for diplomacy in the Iran conflict resurfacing in recent days. EUR/USD appreciates towards 1.126 but has yet to challenge the first meaningful resistance areas around 1.13. DXY tested support at 101.2 (23.6% retracement on the 2026 rise).
Buried by election news was European October headline inflation creeping to 4% from 3.8%. Energy exceeded 20% in y/y terms. That said, non-energy industrial goods inflation also quickened, to 1.2%, and services inflation rose to 3.3% from 3.2%. Wage growth is a key to the latter indicator. The ECB released its wage tracker today. Headline wage growth stands at 2.7% for 2026H2. That would quicken slightly to 2.8% in Q1 and Q2 next year before moderating to 2.4% by 2027Q3. 2027 estimates come with a caveat of still-low employee coverage. Excluding one-off payments, wages would grow 2.7% on average in 2026H2 and pick up to 2.8-2.9% in the first half of next year. Turning back to the inflation figures and core CPI in particular. This is the gauge to watch in coming months since it is most likely key for ECB policy in 2027. The underlying measure matched September’s 2.5% but its brisk monthly 0.3% pace is something to keep a close eye on. The numbers had little impact on European markets. European yields drop a few bps at the long end of the curve in response to a stronger move in the US. Euro area money market bets for ECB tightening remain unchanged with December priced in for about 90%.
News & Views
The Swedish central bank raised its policy rate as expected by 25 bps to 2%. Stronger economic activity combined with cost increases due to supply disruptions mean that inflation is expected to continue rising going forward. Swedish CPIF inflation was 1.5% in September, in line with the Riksbank’s latest forecast. Inflation is still being held back by direct effects of temporary fiscal policy measures. Excluding these, CPIF inflation was 3%. The combination of stronger economic activity, cost increases due to supply disruptions and a weaker krona this year is expected to contribute to both CPIF inflation and underlying inflation rising above 2% next year. If the outlook for inflation and economic activity holds, it is likely that the policy rate will be raised further in the coming year, in line with the policy rate forecast from September. Swedish money markets give a 70% probability to another 25 bps rate hike at the first meeting of next year (February). The euro and Swedish krone keep each other in balance today, just below the 11-mark. The pair tested first technical support at 10.92 at the beginning of the week.
Czech inflation slowed marginally in October, easing to 2.4% Y/Y from 2.5% in September (+0.4% M/M). Fuel prices, particularly diesel, edged lower from September, while food prices declined somewhat more visibly. Services inflation also moderated slightly. However, we estimate that core inflation remained sticky at just above 3%. Towards year-end, we expect inflation to reaccelerate sharply as the drag from lower food prices fades and energy inflation picks up. A move above 4%, even if temporary, would materially increase the probability of one additional rate hike after tomorrow’s expected increase from 3.75% to 4%, taking the policy rate to a terminal 4.25%. The Czech koruna trades stronger today even as front-end Czech yields succumb some bps. Further declining gas prices are the likely reason.
 policy kept casting a dark cloud over European companies. Markets now assume some kind of congressional check on the president for the remainder of his tenure. Wall Street also opens higher with 2% gains across the board.){kind=link}