Markets
The sell-everything-trade took a breather today. Stock markets eke out a small gain of about half a percent. It’s not a lot but at least they stop dropping for a moment. The EuroStoxx50 remains in the technical danger zone though. Core bonds surged in Asian and European dealings. It shouldn’t come as a big surprise that UK notes outperformed US and European/German peers. British yields at some point tanked 37 bps but still found a bottom soon. Current changes range between -11.7 bps for the 2y – an impressive 25 bps intraday comeback – and +10.2 bps (10y) to another massive +28.3 bps (30y). The long end is still adding basis points amid a combo of expectations that the central bank will have to keep policy rates higher for longer, the idea that lavish fiscal stimulus blunts the sharp edges of a recession and increased risk premia. We see curves steepen in the US and Europe too. American yields ease 5.9-8 bps at the front while losing 2.6 bps in the 10y and adding 2.1 bps at the longest tenor. Durable goods orders/shipments more or less matched expectations and had little impact on trading dynamics. Bund rates swing between -3.1 bps and +7.8 bps. The 10y European swap yield (3.03%, +3.8 bps) does not intend to let its recently captured 3% target go. Commodities recover a bit as well. Brent oil prices rise 2% to $85.77/b. Natural gas jumps 7.5% (€186.5/MWh) following reports of leaks in the Nord Stream pipelines. There have been no gas flows through this route over the past month but it adds to the uncertainty of future Russian supplies.
In line with the dust settling a bit on markets, we also see the US dollar taking it down a notch or two in uneventful trading. It loses out against all G10 peers. The move is the sharpest vs the pound. Again no surprise here after the violent GBP dump. Cable rebounds from 1.069 to 1.078, recouping a mere fraction of what it lost on Friday and yesterday. Sterling performs better against the euro too. EUR/GBP erases Monday’s daily gain to trade at 0.892. Back to the dollar then. The trade-weighted DXY fell from 114.1 to 113.3. But underscoring its fundamental strength, DXY clawed back and pared losses to 113.84 currently. EUR/USD is going nowhere just north of 0.96. In USD/JPY, markets are close in testing the Japanese governments’ resolve. The pair neared 145 yesterday and is only marginally backing away (144.54) from that line in the sand officials drew last week by intervening in FX markets.
News Headlines
According to the German IFO export expectations survey, sentiment among German exporters has cooled further in September. Export expectations dropped to -6.0, down from -2.8 in August, bringing it to the lowest level since May 2020. IFO currently sees no sign of export growth and expects no major change in the medium term as the global economy is slowing. Export expectations are negative in most manufacturing industries. The chemical and furniture industry expect a significant further decline. The metal industry has also become considerably more pessimistic. Beverage producers are turning more positive and the automotive industry also expects exports to rise in Q4.
The National bank of Hungary today raised its main policy rates by 125 bps, bringing the base rate to 13.00%. Most analysts expected another additional 100 bps step. A minority expected an even smaller step. In the statement published after the decision, the MNB says ‘by the current level of the base rate, interest rate conditions have become sufficiently strict, which ensures the achievement of the inflation target. The Monetary Council has decided to stop the cycle of base rate hikes after the step in September.’ Tightening liquidity and further enhancing monetary transmission will be in the MNB’s focus. The forint strengthened from EUR/HUF 408 to below 405 upon the announcement of the decision, but returned part of this gain after the MNB statement formally announced the end of the hiking cycle. EUR/HUF currently trades again near 406.
