Markets
Core bonds are dropping at the start of the week and no one really knows why. It’s obviously not the constructive risk environment. European stocks shed about 1% at some point before paring losses to 0.5%. Wall Street opened marginally lower, be it near the record highs. There’s an interesting sectoral divide though with energy companies the only category showing gains (Europe). That brings us to oil markets and the conflict in the Middle East. Tensions rose again after a Hezbollah drone managed to evade Israel’s aerial defenses and exploded next to PM Netanyahu’s private home. That prompted another round of hawkish talk. Brent rises 1.5% to $74.1. While only recouping just a tad of last week’s hefty losses, rising prices and the geopolitical narrative do dovetail with rising bond yields and the mild risk off environment. Bunds underperform US Treasuries, adding 6.1-8.7 bps in a bear steepener, drawn out over the entire European session. US Treasury yields rise 4.1-5.1 bps across the curve. Some more ECB policymakers hit the wires after last week’s meeting. Lithuanian governor Simkus said it is possible the ECB will have to cut to below the natural level of somewhere between 2-3% if a fall in inflation becomes entrenched. He doesn’t think steps bigger than 25 bps are necessary for the time being. Governing council member Kazimir said the December meeting is wide open after having cut at the in between meeting in October. But money markets made up their mind. If anything, Thursday’s October PMI’s pose a risk for more aggressive bets should they disappoint.
The dollar holds the advantage on currency markets. EUR/USD sought to build on Friday’s momentum but ran aground pretty fast. The pair is currently hovering around 1.085. USD/JPY hasn’t given up on the 150 barrier, unfazed by Japan’s top FX official verbal warning end of last week. The trade-weighted dollar marginally rises from 103.4 towards 103.7. DXY on Friday incurred only it’s third loss this month so far, with the 200dMA proving too big a hurdle for the time being. EUR/GBP holds near the recent lows just north of 0.83 after testing that big figure (which coincided with the lower bound of the November ‘23 downward trend channel) end last week.
News & Views
Several Polish September data published today printed soft/softer than expected. Sold production rebounded 9.0% in September from August, but the level was still 0.3% lower compared to the same month last year. According to Statistics Poland, among the main industrial groupings there was a 2.6% Y/Y decrease in the production of intermediate goods and by 1.2% in capital goods. An increase was observed in the production of non-durable consumer goods (+ 2.7%) and durable consumer goods (2.3%) and a modest rise in energy production (0.1%). Despite a (seasonal) monthly rebound (12.0%), construction output remained 9.0% below the level of the same month last year. September labour market data also suggest a cooling. Average wage growth decelerated further (-0.6% M/M and 10.1%Y/Y; 11.0% Y/Y was expected). Employment also declined -0.1% M/M and -0.5% Y/Y. At the same time producer prices also showed a further easing price pressures (-0.5% M/M, -6.3% Y/Y). The data, while volatile, suggest that underlying trends are falling in place for the National Bank of Poland to gradually reconsider rate cuts (currently 5.75%). Most NBP comments recently held the line that a rate cut will only be possible after the March 2025 MPC meeting at best. The zloty weakens from EUR/PLN 4.305 to currently 4.3175, but to move is in line with other regional FX was mainly already occurred before the data release.
According to UK property website Rightmove, average seller asking prices for British homes rose 0.3% M/M in October, but this was much lower than the average seasonal monthly increase for this time of the year. Prices were 1.0% higher compared to the same month last year. The modest rise occurs even as market activity remains strong. The number of sales is rising sharply. As explanation for the modest rise Rightmove mentions that buyers are using a greater choice of properties available to increase their negotiating power. Rightmove still maintains a positive assessment on 2025 even as affordability pressures remain. Some buyers may be waiting for Budget clarity and cheaper mortgage rates before acting.
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