Markets
Today’s empty eco calendar turned the spotlight on yesterday’s start of the impeachment inquiry against US President Trump. Risk aversion on stock markets spread from WS over the Asia to Europe. Main indices drop up to 1%. Spill-over effects to other markets are more limited. Core bonds tread water with a small outperformance of German Bunds. Daily changes on the US yield curve are limited to +/- 1 bp across the curve. The German yield curve bull flattens with yields down 0.1 bp (2-yr) to 2 bps (30-yr). 10-yr yield spread changes vs Germany ranged between ‑2 bps and +1 bp. Dollar strength prevails on the FX market sending EUR/USD back below 1.10 and USD/JPY above 107.50. BoJ board member Masai signaled wiliness to ease again because of the possibility that prices are losing momentum. He’s also concerned about mounting risks from overseas. His comments add to bets that the BoJ is preparing action at the October 31 meeting after the thorough review of policy which is now being executed.
Sterling traded in the defensive today. EUR/GBP rises from 0.8825 to 0.8871 with GBP/USD losing 1 big figure and currently changing hands around 1.2385. UK PM Johnson flew back from the UN Summit in New York to address UK Parliament in its first hearing after the UK Supreme Court judged Johnson’s prorogation as unlawful. Attorney General Cox said that a motion for a general election will be brought to parliament “shortly”. The latter seems unlikely to pass through though given that UK opposition leader Corbyn wants to wait until the October 17 EU Summit.
News Headlines
Sales at British retailers declined for a fifth straight month in September according to the distributive trade survey of the Confederation of British industry (CBI). The volumes of sales index rose form -49 to -16, but remain in negative territory. Stores also judged sales as poor for the time of the year. CBI measures of retail spending recently often were worse than other (official) indicators, but the data still suggest consumer caution ahead of Brexit.
The Czech National Bank today kept its policy rate unchanged at 2% as largely expected. The CNB indicated that recent economic data signal continued solid economic growth in 2019 Q3. The central bank assessed the risks to the current inflation forecast as being rather substantial in both directions and slightly inflationary overall. The koruna remains weaker than the Q3 forecast. In light of the slightly inflationary overall balance of risks to the forecast, the Bank Board discussed the possibility of raising interest rates. A preference for leaving rates unchanged ultimately prevailed. The koruna (EUR/CZK 25.80) gained modest ground after the CNB policy announcement.
