Markets
With only few data on the agenda and investors looking forward to the ECB policy decision and the first estimate of US Q3 GDP tomorrow, (bond) markets were captured in technical trading. German Ifo business confidence was marginally better (less negative) than feared. Both the current assessment (89.2 from 88.7) and expectations (84.7 from 83.1) improved. The picture looks a bit more constructive compared to yesterday’s PMI’s. Ifo even mentioned some ‘silver lining’ ahead for the German economy and President Clemens Fuest saw chances of stabilization/slight growth in Q4. Nice, but his assessment for now isn’t a consensus view. Plenty more better news is needed to mitigate the recessionary narrative (on Germany and EMU). European equities opened in red as they ignored China signalling additional fiscal and monetary support, but selling eased. At least today, a less aggressive risk-off apparently allowed yields to reverse some of yesterday’s setback post the poor EMU PMI’s. German yields add between 1.5 bps (2-y) and 5.5 bps (30-y). US yields gain between 4.5 bps (5-y) and 10 bps (30-y). The yield decline (2.5 bps) in the 2-y is affected by a benchmark change. If anything, the ‘by default’ upward drift in LT yields apparently isn’t completely destroyed after recent more volatile swings. Brent oil stabilizes near $88.5 p/b. The Eurostoxx50 briefly moved in the green but currently again loses 0.2%. US indices open up to 1.0% lower after yesterday’s rebound. The sell-on upticks dynamics remains in place.
After a disappointing performance over the previous two weeks, the dollar tries to build on yesterday’s PMI-driven rebound. DXY touched the 106.5 area, compared to a ST correction low at 105.36 yesterday. EUR/USD dropped further to currently trade near 1.0575. A drop below a tentative ST uptrend line coming in near 1.0555 would signal the failure of a tentative ST bottoming out pattern. Sterling remains in the defensive, with EUR/GBP (0.8725) holding north of the 0.87 support/previous resistance. CE currencies also fight an uphill battle today. EUR/CZK at 24.69 is nearing the YTD top. EUR/PLN jumped from 4.4625 area to 4.48 on headlines that the incoming coalition wants to avoid fiscal consolidation. The forint extends losses as yesterday’s bigger than expected MNB rate cut raises questions on its commitment to keep policy tight enough for long enough to bring inflation back to target. EUR/HUF extends yesterday’s rebound to EUR/HUF 385 compared to 381 area before yesterday’s policy decision.
News & Views
Donald Tusk travelled to Brussels, vowing to officials he would use all possible methods to win over the EU’s trust in Poland again with the ultimate goal of unlocking the €34bn in NextGen funds. Tusk as leader of the opposition’s Civic Platform has been put forward as candidate for prime minister after winning the elections from the incumbent ruling PiS party. The latter, however, is still expected to be given the first shot in trying to form a governing coalition since they turned out to be the single biggest party. A new government with Tusk at the helm could take until December. Tusk noted that he showed up in his capacity as the opposition’s leader, adding that the talks were only informal. But in doing so, he makes good on an election promise to visit EU officials the day after winning them. Several of them warned Tusk of “expecting too much, too soon”. Aside from fixing the frayed relations with the bloc, the incoming administration also seeks to avoid fiscal tightening next year and possibly longer due to a busy election calendar, people familiar with the matter said. Poland holds local and European parliament elections in 2024 and a presidential ballot in 2025. Not closing the fiscal taps may complicate the central bank’s task against inflation, which still stood at 8.2% in September. The NBP has already lowered policy rates by a cumulative 100 bps.
Belgian business confidence fell in October from -14.4 to -16.8, the lowest since June 2020. Business-related services severely deteriorated following a short-lived uptick in September. This is the result of a clearly more unfavourable assessment of current and future activity levels and to a lesser extent of demand expectations. All components in trade dipped, with employment and demand expectations catching the eye. More pessimistic views on demand expectations and the assessment of order books weighed on the building industry indicator. By contrast, demand expectations were more favourable in the manufacturing industry, which also witnessed a slight improvement in the assessment of stock levels. Sharply dropping employment expectations balanced out the overall indicator.
