Markets
Tuesday’s hotter-than-expected CPI print caused a massive bear flattening move in the US yield curve. The 2-yr tenor closed 17.6 bps higher with intraday gains having been as large as 20 bps. The 10-30yr bucket added between 7.4 and 10.8 bps. Fed Waller laid the groundwork for such an outsized move prior to the CPI release. He warned that if inflation fails to improve in October, he would support hiking by a lumpy 50 bps in December in the spirit of protecting the central bank’s credibility. It’s exactly what happened: headline (0.4%) and core (0.3%) topped estimates. Interpolating price index levels to estimate the missing official y/y readings brings us to almost 4% and 2.8% respectively. Our in-house KBC nowcast based on Tuesday’s outcome puts October PCE (the Fed’s preferred gauge, released Nov 25) at 3.8% for headline and 3.2% for core. A first November CPI estimate stands at 3.9% for headline and 3% for core. Fed board member Logan in later comments backed at least two additional 25 bps increases at a quicker (ie. back-to-back) pace. Philly Fed and board member Paulson dismissed inflation as just about temporary factors that will go away on its own, although she continues to favour a gradual tightening approach. Fed’s Goolsbee (non-voter) called the report “distressing, borderline disturbing”. More Fed members (Hammack, Barr, Daly, Williams) could weigh in on the matter in speeches today. It’s unlikely they’ll support Treasuries doing so. The US money market moved from pricing in an 85% probability for a regular December hike to actively contemplating Waller’s jumbo move scenario. The US bond market – closed for Veterans Day yesterday – served as a circuit-breaker, allowing for the dust to settle. Treasuries do reopen lower in Asian dealings this morning with yields rising by up to 3 bps in the shortest maturities. The US dollar isn’t planning to take it slow. A strong performance on Tuesday met with follow-through gains yesterday. EUR/USD lost the 1.1111 key support in the process. The pair is currently testing intermediate support around 1.1065 (May 2025 correction low) ahead of the more important 1.0882 (61.8% retracement on the 2025-2026 rally). DXY pierces through the previous YtD high with the current 103 its best level since April 2025. UK Q3 GDP growth accelerated from the previous quarter. The 0.7% q/q pace (1.9% y/y) printed bang in line with expectations, but the decomposition was strong with, amongst others, personal consumption nearing the fastest pace of the last four years. It’s causing some minor GBP strengthening this morning. In other corners of the market, US (tech) stocks are set for returning part of yesterday’s rally on reports of Nvidia CEO Huang potentially being prepared for the exit. Oil and natural gas prices have found a bottom after a sharp decline over the past two weeks. European (swap) yields are experiencing similar bottoming out.
News & Views
The Financial Times reports that Europe is consulting the auto industry on proposals to postpone the 10% levy on UK-EU electric car sales. People familiar with the matter say that the UK supports the move. The 10% tariff would normally apply from January 1st with most EVs failing the tariff test. It puts the minimum UK/EU originating content of EVs at 55%, their battery packs at 70% and their battery cells at 65%. It originates from the post-Brexit trade deal which imposes those “Rules of Origin” to make sure a sufficient share of value originates in the EU. It generated a push for an EU battery supply-chain to reduce dependence on China and aimed to bolster industrial capacity. The car lobby and battery groups have different interests in the discussion as the latter want the EC to stick with the Jan 1st 2027 deadline, arguing that a U-turn would undermine (European) investments. Serious negotiations on a delay of the rules are expected to be part of next week’s EU/UK Summit in Brussels (Nov 20).
Results of the October 2026 RICS Residential Survey continue to point to subdued UK market conditions, with the renewed rise in mortgage interest rates weighing on buyer demand. The new buyer enquiries indicator returned a net balance of -24%, unchanged from September and still consistent with negative demand momentum. The net balance of agreed sales fell from -18% to -24%; marking the weakest reading of the past 3 months. The 12-month outlook (net balance of -17%) is the most pessimistic since July 2023. On the supply side, the pipeline of new listings is expected to slow further over the next few months. For house prices, the aggregate series tracking changes over the past three months posted a net balance of -36% in October, edging down from -34%. Respondents envision a modest easing in house prices over the next 12 months with a net balance of -17%. In the lettings market, rental growth expectations strengthened against a backdrop of constrained supply and modestly rising tenant demand.
