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Markets
Markets entered calmer waters after the massive bond sell-off and the subsequent risk-free repositioning in global equity markets. However, uncertainty remains high as investors face multiple often contradictory signals. Energy commodities including natural gas and oil (brent $ 78 p / b) are down from yesterday’s highs, but remain a source of rising inflation and risk becoming a hindrance to future growth rather than to be the sign of healthy demand. Central banks are also struggling to cope with this unusual complex. China (financial stability, energy supply problems with potential negative spillover effects on growth) also remains a source of uncertainty. This also applies to the political wrangling over the US debt ceiling / fiscal policy. US (2yr -0.7bp; 30yr -3.5bp) and German (-0.5bp, 30yr -2.5bp) rates are attempting to (re) flatten. However, it is too early to call this a correction after the recent sharp rise. The uptrends / improving technical pictures for US (1.50%) and German 10-year (-0.22%) yield remain intact. Upcoming inflation data (Germany tomorrow, EMU CPI and US PCE deflators Friday) are the next important data benchmark to guide interest rate markets. Today, EMU EC economic confidence (117.8 vs. 117.6) turned out to be solid / stronger than expected as sentiment improved among consumers, manufacturing and construction. Sentiment in trade and services eased. The report suggests that the EMU recovery remains well on track, but has had no lasting impact on trade. Intra-EMU spreads have only been modestly affected by the recent global repositioning. The Italian 10-year spread reversed most of yesterday’s widening (-3bp). European stocks rallied 1.0% + around noon, but sentiment eased again as US traders joined in. American indices are struggling to stay in the green. Technical graphics always seem heavy.
The pause in bond / equity liquidation did not change the constructive momentum of the US dollar. The trade-weighted index (94.00) broke through the high of 93.73 / resistance. EUR / USD fell below the support at 1.1664, paving the way for a further test of the 1.1612 / 03 area (September / November 2020 low). The yen failed to hold onto modest gains at the start, although risk sentiment remains fragile. At USD / JPY 111.55, the recent high is still within reach. The pound remains in the doldrums losing against a strong dollar (1.3450 cable), but also against an otherwise gloomy euro (EUR / GBP 0.8650). Today’s price action suggests that yesterday’s sterling decline was not just due to global risk aversion, but a wider distrust of the economic performance of the UK. UK could also be at stake.
News
Fumio Kishida won the leadership race of the Liberal Democratic Party in Japan. Kishida, a former foreign minister, is seen as a consensus builder. As leader of the PLD, he will become the next Prime Minister, probably from early October. General elections in Japan should take place in the first half of November. Kishida is seen as supporting a persistent fiscal stimulus policy. In this regard, he advocates a new spending package of “tens of billions of JPY” and endorses the Bank of Japan’s current stimulating monetary policy. It also gives more weight to distribution of wealth and in this regard could take a “less neoliberal†approach than was the case under “Abenomicsâ€. The yen did not react much to the news of Kishida’s victory.
The headline CPI in Belgium as published by Statbel fell 0.25% M / M, but the Y / Y figure rose again from 2.73% in August to 2.86% this month. Annual price increases have reached the highest level since February 2017. Core inflation, which excludes energy products and unprocessed foods, edged down from 1.65% to 1.61% yoy. Inflation on food and non-alcoholic beverages fell for the eighth consecutive month to -0.99%. In contrast, inflation for energy products stood at 19.37%. The largest price increases in September were recorded for alcoholic beverages, fuels, heating oil, private rental, and maintenance and repair of personal transportation equipment. Hotel rooms, bread and cereals, confectionery, package holidays in Belgium, soft drinks, dairy products and meat all had a decreasing effect on the index.
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