Markets
A typical in-between trading day ahead of major eco releases and central bank speeches got shaken up by news coming from South Korea. SK president Yoon declared an emergency martial law during a televised address. Yoon of the conservative People Power Party accuses the opposition – which is in control of the 300-member parliament since 2022 – of paralyzing the government with impeachment moves and sympathizing with North Korea. Yoon vowed to “eradicate pro-North Korean forces and protect the constitutional order.” The surprise decision came amid a near-constant political standoff with the opposition, amongst others over next year’s budget bill. It’s the first time a president declared martial law since the military dictatorship ended in the late 1980s. As South Korean politics take a turn for the worse, so does the currency. USD/KRW surges to 1422, nearing the post-pandemic and 13-yr highs of <1450. US Treasuries reversed earlier minor losses. Safe haven flows push yields between 0.7-2.9 bps lower, the front outperforming. Gold eked out some gains as well as the news broke out, rising to $2653/ounce. Bunds underperform Treasuries, holding on to most of the earlier losses. Yields rise between 0.6 and 3.7 bps, underperforming against swap as well. The dust settled for now for French OATs ahead of tomorrow’s vote on a motion of no confidence. French yields lose a few bps at all tenors but the short-term ones. Spreads vs Bunds and swap ease as well after hitting new 12-year highs yesterday. There are only little traces of the breaking news on currency markets outside SK. The Swiss franc rose marginally. With EUR/CHF at key levels around 0.93, markets are wary to push the CHF even further and provoke the Swiss National Bank into interventions. Yen gains are a bit bigger, especially against an overall weakish US dollar. USD/JPY drops to 148.8. US equity futures turned red with the tech-heavy Nasdaq leading the way down. Calm already returned by the cash open though, with major indices more or less trading flat.
News & Views
Swiss headline inflation declined 0.1% M/M, slightly raising the Y/Y measure from 0.6% to 0.7%, the Swiss Statistical Office reported. Core inflation (ex fresh and seasonal products and energy & fuel) was unchanged on the month. The Y/Y figure also rose slightly to 0.9% from 0.8%. The 0.1% decrease compared with the previous month is due to several factors including lower prices for hotels and international package holidays. Prices also decreased for new cars and fruiting vegetables. Housing rentals and air transport recorded a price increase. The Swiss National Bank sees price stability as inflation holding with the 0.0%-2.0% target range. Markets after today’s CPI release see a sightly higher chance on a 50 bps rate cut at next week’s meeting compared to 25 bps cut as was the case at the previous three meetings (policy rate currently 1.0%). Poor growth domestically and at some of its major trading partners, inflation holding in the lower part of the SNB target range and a strong franc recently caused the SNB head Martin Schlegel not to exclude the use of negative interest rates and FX interventions if necessary to maintain price stability. The Swiss Franc didn’t react much today with EUR/CHF holding near 0.93.
Turkish Statistical Office data showed that inflation in the country declined less than hope for in November. Monthly headline inflation rose 2.24% M/M and 47.09% Y/Y (was 2.88% M/M and 48.58 Y/Y in October) but consensus expected a more pronounced decline to 46.6%. Core inflation showed a similar dynamics easing from 47.75% to 47.13%. Food and non-alcoholic beverages showed the biggest rise (5.1% M/M). In its November 28 policy statement, the central bank (CBRT) guided that ‘The tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range. Accordingly, the level of the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path, taking into account both realized and expected inflation.’ This was seen as potentially opening the door for a December rate cut in case of an ongoing favourable inflation developments. However as food prices, which are basically out of reach of monetary policy, are the main driver for the ‘upward’ surprise, the debate on a guarded rate cut at the December 26 policy meeting probably remains open. The lira today declined slightly further against the dollar trading at a record low USD/TRY 34.75.
