Markets
Today’s economic calendar served as nothing more than an appetizer compared to what’s to come in the next few days. In the run-up to the euro area wide figure, national inflation readings were due in Spain, Germany and Belgium. They all printed to the soft side of expectations. German HICP even declined 0.2% m/m in October, bringing the yearly outcome to the lowest since July 2021 (3%). Spanish inflation halved in its pace from 0.6% m/m to 0.3% m/m. The expected y/y uptick therefore stayed limited to 3.5% instead of the 3.8% consensus. We also had our first batch of national GDP growth figures. Heavyweight Germany contracted 0.1% q/q in the third quarter this year. That’s less than the -0.2% feared though. The Q2 figure was even revised up marginally to 0.1% q/q. It’s not much but it was enough for the euro to actually gain on the German outcome. EUR/USD bounced off the lower bound up the October upward trading range to test the 1.06 big figure again. We suspect the positive risk environment has a say in this as well. The EuroStoxx50 at some point rose 1% before paring gains to 0.4%. Important support levels survive though barely. US stock indices also add 0.9-1.2%, recouping some of Friday’s losses again. Aside from a pinch of euro strength, dollar weakness is at play too. DXY eases to 106.28. Only an even weaker JPY is preventing more losses in this trade-weighted greenback basket. USD/JPY appreciates to 149.73 as it moves into one of the bigger wildcards for trading this week: the Bank of Japan. They meet tomorrow against the background of a historically weak yen, yields hitting decade highs and stubborn & above-target inflation (cf. Tokyo gauge on Friday). Japanese newspaper Nikkei citing unidentified people familiar with the matter reported that the central bank is indeed considering to let 10-year yields rise above the current 1% cap. If sterling maintains current loses, EUR/GBP is on track to close at the highest level since mid-May (0.873). US Treasuries underperformed Bunds this time around. US yields add 5.4 (2-y) – 7.6 bps (10-y). German yields gapped lower at the open in a catch-up move with the US in late Friday dealings. They bottomed soon thereafter before fully wiping out 7 bps of declines. In another sign of improved sentiment, gold’s rally halted. For one ounce of the shiny metal you’d still have to cough up almost $2000 though. Brent oil erases much of Friday’s (fear-for-a-full-blown-Israeli-invasion driven) gains and is trading back sub $90/b.
News & Views
The National Bank of Belgium reported that the Belgian economy grew by 0.5% Q/Q in Q3 2023 (1.5% Y/Y). Based on an initial estimate, value added fell by 0.6% in the manufacturing industry while services and construction rose by 0.8% and 0.6% respectively. Growth figures are surrounded by even greater uncertainty than normally owing to lack of administrative data for the month September in particular. Belgian inflation rose by 0.34% M/M with the Y/Y-figure dropping from 2.39% to 0.36%, the lowest level since January 2021. This is solely due to energy which came in at -37.15% Y/Y from -28.73% in September and accounts for -5.46 percentage points to total inflation. Inflation based on the health index has fallen from 2.08% to 0.30%. Belgian core inflation which strips out energy products and unprocessed foods is on a much slower slide: 6.55% Y/Y from 6.95% Y/Y in September. Services inflation decreased from 7.18% to 7.09% while food inflation fell from 11.15% to 8.98%. Rent inflation increased from 5.33% to 5.84%.
The Swiss National Bank announced an adjustment to the remuneration of sight deposits (tiered system) from December 1st. First, the central bank will no longer renumerate the entire minimum reserve requirement irrespective of whether it is met using cash or sight deposits. Second, the SNB will lower the threshold factor for the remuneration of sight deposits subject to minimum reserve requirements from 28 to 25. Up to the threshold, the SNB policy rate will be applied. Above it a 0.5 percentage point discount will be applied. In separate comments, SNB vice president Schlegel this weekend suggested that further rate increases to the 1.75% SNB policy rate may still be needed given the very good shape of the labour market. In order to tick the rate hike box, unfavourable inflation developments are needed as well. Swiss money markets currently believe that the next SNB move will be down (next year).
