Markets
With few data in Europe or the US, markets continued to be haunted by headlines on the war in Ukraine, even as the impact wasn’t unequivocal across markets. Ukraine reporting that Russia used an Intercontinental Ballistic missile for the first time only added to fears on a further escalation. European equites and yields nosedived. In this risk-off, the dollar gained against the euro, but declined further against the yen. Still, equities staged a (wobbling) comeback. The EuroStoxx 50 currently trades little changed. US stocks opened similarly. On interest rate markets, European yields failed to build on recent tentative bottoming. German yields currently decline 4.0/5.0 bps across the curve, with the very long end underperforming(-3.0 bp). Still recent lows survive. US Treasuries underperform. Weekly jobless claims declined further (213k) but was counterbalanced by a disappointing Philly Fed business outlook (-5.5 from 10.3 vs 8.3 expected). US yields currently decline about 2-3 bps. Money markets still see an almost even chance between a 25 bps Fed rate cut (55%) or a pauze at the December meeting. Next reality check comes with the November PMI’s, scheduled tomorrow. Oil gradually leaves recent lows behind with Brent back at $ 74 p/b.
On FX markets, the dollar looked like preparing an attack on recent highs (Ukraine) but momentum faded soon. DXY even trades marginally lower at 106.6. The euro is more vulnerable. At 1.0525, recent low at 1.0497 remains within striking distance. CEE currencies also stay in the defensive. The damage for the Czech koruna remains modest (EUR/CZK 25.33 from 25.28). The zloty trades at EUR/PLN 4.345 with multiple resistance just below/near EUR/PLN 4.40. The forint also trades off intraday lows, but struggles to sustainably return below EUR/HUF 410.
News & Views
Statistics Norway reported that mainland growth economy (excluding the offshore energy industry) accelerated to 0.5% Q/Q inn Q3 from 0.3% Q/Q in Q2. Total activity including the petroleum activities and ocean transport declined 1.8% in Q3, due maintenance operations. Value added in manufacturing and mining increased 2.3% with oil refining, chemical and pharmaceutical manufacturing contributing the most. Manufacturing has increased several quarters in a row, an accelerated further in Q3. Fishing and agriculture also increased 14% . Valued added in construction stays on a negative trajectory. Regarding final expenditure, financial consumption expenditure was almost unchanged from Q2, but Statistics Norway warns this was a complex story. Car purchases decreased, after an uptick in Q2, but service consumption and Norwegians’ consumption abroad increased. After a quick rise after the pandemic, employment growth slowed but the number of employed was still 0.2% higher compared to Q3 2023. Today’s data justify recent guidance from m the Norges Bank (NB) that a restrictive monetary policy is still needed at 4.5% this year. It only sees room for gradual easing in Q1 2025. Markets see that happen in March rather than in February. The krone extends its recent rebound currently testing first important near EUR/NOK 11.60..
The Central Bank of the Republic of Turkey (CBRT) as expected left its policy rate unchanged at 50.0%. Inflation in the country has eased over recent months (headline 48.58%, Core 47.75%). That path probably still develops slower than the CBRT hoped for as it recently raised its end of year inflation forecast to 44% (from 38%) and to 21 % eoy 2025. Still, the CBRT today sees progress as Q3 Indicators suggest domestic demand continues to slow down, reaching disinflationary levels. Core goods inflation remains low and signs for an improvement in services inflation are assessed to have become more apparent. Inflation expectations and pricing behavior tend to improve, but CBRT admits they pose risks to the disinflation process. Looking forward, CBRT assesses that a tight monetary stance will bring down the trend of monthly inflation through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations. Increased coordination of fiscal policy will also contribute to this process. CBRT concludes that a 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 forecast range. CBRT holds its final meeting of the year on December 26. Analysts remain divided whether a first limited cut will already be possible in December or whether the CBRT will (have to) wait until next year. The lira recently held near record low levels against the dollar (currently USD/TRY 34.48), but regained modest ground against the euro (EUR/TRY 36. 36).
