Markets
Energy markets were set ablaze once again as investor fears turned into outright panic at the start of European dealings. Dutch gas futures at a certain point surged 40% in just two hours, prompting the EU to pledge to action that may include aid and tax cuts while also proposing stronger gas storage and supply security rules. The Secretary General of OPEC+ tried to sooth markets as well with comments that it is committed to keep the oil market sustainable. On a sidenote, Saudi Arabia effectively cut oil prices this morning for customers in Asia, Europe and the US. Brent oil today sheds a little more than 1%. Russia’s Putin later said his country stands ready to help stabilize energy markets with gas supplies to Europe perhaps reaching a new record. Good Guy Putin helped to pull the sting out of spiraling gas prices and send gas futures from 40% higher to 2% lower for the day. The wall of stagflation worries hit equities hard with the EuroStoxx50 tumbling 2.5% intraday and temporarily forfeiting the 4k handle before trimming to 1.3%. Wall Street opens with declines of about 0.5%. The core bond yield’s jump during Asian/early European dealings of 4-5 bps eased throughout the session and in lockstep with easing energy prices. European inflation expectations (10y inflation swap) reversed a further rise to 2.04% to 1.98%. German yields currently trade flat across the curve. The US curve flattens with yields marginally higher at the short end (+1 bp, 5y) and lower at the long end (-1.7 bps, 30y). A strong ADP job report (+568k vs 430k expected) bodes well for Friday’s official payrolls. Markets largely ignored the figure however since it only confirms baked-in expectations of tapering to start in November. The dollar continues to dominate on FX markets. EUR/USD in particular is under heavy pressure. The currency pair tanked to the lowest level since June 2020 (1.155). Only the Japanese yen is able to withstand the greenback (USD/JPY marginally lower near 111.38). Sterling’s performance in these uncertain days has been remarkable for some time now, that includes today. EUR/GBP is trading a narrow sideways pattern dangerously close to the 0.85 support. Even cable (GBP/USD) is holding up relatively well (1.358).
News Headlines
Hungarian industrial production declined 2.7% M/M in August, reducing the Y/Y growth (WDA) from 10.2% to just 0.6% Y/Y. According to KSH, most parts of the manufacturing sector still contributed to Y/Y increase. However, production in the car sector shrank significantly as some auto plants were obligated to shut down production due to shortages of semiconductors. Output in electronical equipment also decreased. On the other hand, output in food, drinks and tobacco increased. In a separate report, the KSH reported Y/Y retail sales growth at 4.1% Y/Y in August, up from 3.0% in July and above market expectations for a stabilization. Sales of food products rose 1.7% Y/Y while non-food produces rose 7.8% Y/Y. The forint in the meantime weakened again to the EUR/HUF 360 mark as higher core yields and a risk-off sentiment is weighing on regional currencies.
In Germany, the Free Democrats (FDP) and the Green party agreed to propose starting talks with the SPD on Thursday. The SPD accepted. Both the Greens and FDP are still keep open the possibility negotiations with the CDU/CSU. However they don’t indeed to hold no parallel talks for now.
The National Bank of Poland raised the main policy rate by 40 bps to 0.50%. This was a big surprise. Analysts unanimously expected the NBP to keep the policy rate unchanged at 0.1% today. A potential re-evaluation was only expected that the November meeting when the NBP will have a new inflation forecast available. However, a sharp rise in inflation and pressure from rising core yields apparently convinced a majority in governor Glapinski’s MPC to put aside the narrative that current rise in inflation was mainly due to factors that are out of reach of domestic monetary policy. The NBP policy statement is not available yet. The zloty in two intraday moves strengthened from the EUR/PLN 4.63 to currently trade near EUR/PLN 4.55.
