Markets
Taking aside corporate news (Volkswagen, Boeing), this morning’s headlines still feature on news terminals. Brent crude fell from $76/b to $72/b after Israel shunned Iranian crude facilities with this weekend’s retaliatory strikes. JPY managed to erase part of the losses following snap parliamentary election results which terminated 15-years of LDP dominance as voters cut them short of a new absolute (coalition) majority. The most likely outcome is a weaker minority government as PM Ishiba gave no signs of stepping down. USD/JPY yoyoed from 152.50 to 154 and back. The fact that we’re still digesting such news is testament to the wait-and-see approach in the build-up to this week’s big events. German Bunds outperform US Treasuries in the run-up to the start of the Treasury’s end-of-month refinancing operation. They kick-off tonight with $69bn 2-yr sale and a $70bn 5-yr auction. Via a $44bn 7-yr Note auction tomorrow, supply focus goes to the Treasury’s quarterly refunding announcement on Wednesday. US yields trade 1-2 bps higher across the curve compared with losses for 2 to 3 bps for German yields. Relative yield dynamics don’t help the dollar with EUR/USD failing to return below 1.08. Later this week, the US publishes the first estimate of third-quarter GDP growth as well as quarterly PCE inflation numbers (Wednesday). Key US labour market data include JOLTS job numbers on Tuesday and (hurricane-affected) October payrolls on Friday. Spotlights are also on Europe with GDP growth released on Wednesday. The economy may have fared better than the dire Q3 PMI readings suggested (0.2% vs flat). Hard data lately often deviated from soft indicators. October inflation most likely picked up again in the EMU. Base effects will make it clear that the current 2% undershoot is temporary.
The Slovak Republic announced a new 7-yr syndication deal, to be launched it the near future (likely tomorrow). Its their second and final syndication of the year following a €3bn 10-yr deal in March. Via multiple regular and a special auction in February, Ardal also raised €7.2bn year-to-date. Add a small FX-deal (CHF; €0.65bn) and they’ll be close to hitting their original €13bn long-term funding target from the start of the year after tomorrow’s deal. That consisted out of €5bn redemptions and an expected budget deficit of €7.6bn. The latter could eventually be nearer to €5.8bn implying that the proceeds of the new 7-yr bond could be partly seen as prefunding for next year. The 2025 funding target will be €12-13bn stemming from €6.5bn bond redemptions and a forecasted deficit of €6.4bn. Ardal targets to raise €6bn via regular monthly auctions and €6bn via syndications.
News & Views
The Confederation of British Industry (CBI) said British retailers reported a fall in sales in October. After reporting only the third positive reading in September (+4), the headline index fell back to -6. Expectations were for an even bigger drop to -10. The CBI’s Principal Economist said that some firms highlighted increasing consumer caution ahead of this week’s Labour Budget as a key factor for the lower sales. The CBI’s wholesale index fell as well, from -8 to -14. The survey’s one-month forward looking gauge shows retailers expecting a flat performance for November. The drop in sales comes after other consumer confidence indicators, including GfK’s on Friday, showed sentiment deteriorating in recent weeks, often tied to uncertainty about the upcoming Budget reveal.
Central-European currencies remain under pressure these days. The Czech koruna underperforms the HUF and PLN but is trading in holiday-thinned circumstances but that doesn’t change the fact that EUR/CZK continues to trade near the recent highs (CZK lows) near but below 25.5. EUR/HUF came close of the 405 mark for the first time since end 2022. Due to the weak forint, bets for further easing by the central bank this year are evaporating. The Polish zloty is set for the lowest close against the euro since mid-2024 (EUR/PLN 4.351). Domestic factors play an important role with a bag of mixed data over the past weeks (eg. awful retail sales last week) fueling expectations for a first rate cut by the central bank perhaps sooner than the majority of the board currently floats (March 2025 instead of Q2?). That said, there’s a common factor pressuring CE currencies lately: Trump’s comeback since mid-September in the polls. Markets increasingly position for a second term, with the expected fiscal largesse pushing US yields higher in the so-called Trump trade. Trump’s foreign policy and the tariff threats in particular would be another hit for these smaller open economies. Lastly, a Trump presidency as well as a changed composition of Congress contains an element of geopolitical uncertainty as to how a Republican-led America will address the Russian conflict.
, this morning’s headlines still feature on news terminals. Brent crude fell from $76/b to $72/b after Israel shunned Iranian crude facilities with this weekend’s retaliatory strikes. JPY managed to erase part of the losses following snap parliamentary election results which terminated 15-years of LDP dominance as voters cut them short of a new absolute (coalition) majority. The most likely outcome is a weaker minority government as PM Ishiba gave no signs of stepping down. USD/JPY yoyoed from 152.50 to 154 and back.){kind=link}