• Global markets experience some kind of ‘the day (week) after’-feeling as investors tried the assess last week’s sharp repositioning post softer than expected US inflation data released on Thursday. Fed governor Waller during the weekend at least tried to put the report into perspective. The Fed maybe can consider slowing the pace of rate hikes (from 75 bps steps to 50 bps). However, it’s much too early to already start the debate on the end point of the rate cycle. Several Fed members scheduled to give their view later this week, will probably talk in a similar way. Technical factors are also in play. The US 2-year (currently 4.41%) end last week came within reach of the key 4.26% support area. A break below this level would coincide with markets dismissing Fed Powell’s guidance that interest rates will have to be raised beyond the 4.50/4.75% peak level indicated in the September dots. It’s too early already to expect such a U-turn in the Fed strategy/communication just on one ‘positive’ CPI reading with inflation still far above target. The US 10-y yield (4.88%) also hesitates whether there is already room for follow-through price action after breaking below a first support near 3.90% (ST neckline). US yields today rebound between 7 bps (2-y) and 4 bps (30-y) from Thursday’s closing levels (US bond markets were closed Friday). The repositioning on EMU bond markets last week was more limited compared to the US and German/EMU yields already reversed part of Thursday’s correction on Friday. German yields are easing between 6 bps (2-y) and 3.5 bps (30-y). Especially short-term European yields stay close to recent cycle peak levels as the ECB still has more work to do to arrest an ongoing rise in inflation. European equities show modest gains (+0.5%/1.0%). For now, the EuroStoxx 50 is holding above the 3819 neckline, which, if confirmed would suggest that a this year’s sell-on upticks pattern might roll over into more sideways trading. Brent oil eases slightly ($95 p/b area), extending its consolidation pattern.
• The dollar already showed signs of a topping out pattern before the US CPI and last week dropped below several intermediate support levels. The short-term picture for the US currency remains fragile. DXY traded in the 113 area only 10 days ago, but now struggles to regain the 107 big figure. EUR/USD also hardly returns any of last week’s gains. At 1.0320, the pair is holding within reach of the key 1.0350/70 resistance area. The yen underperforms with USD/JPY regaining the 140 handle (140.4 from open of 138.75). EUR/GBP (0.8775) gains a few ticks as markets await an in extenso eco update later this week (labour data tomorrow, CPI on Wednesday and retail sales on Friday) as well as Fin Min Hunt’s autumn fiscal statement expected on Thursday. CE currencies last week only profited very mostly from the global risk rebound as domestic interest rates also nosedived sharply. Today, regional currencies are facing modest selling pressure, with the forint underperforming (EUR/HUF 408) even as the MNB indicated that market speculation on reducing high (18%) overnight interest rates are premature. The zloty also eases as the NBP in its November inflation report only expects inflation to return to the 2.5% (+/- 1.0%) target range end 2025.
• The cartel of oil producing and exporting countries (OPEC) released its monthly oil market monitor today. The world economic growth forecast for 2022 and 2023 remains unchanged at 2.7% and 2.5%, respectively. The world oil demand growth forecast for 2022 is revised down by 0.1 mb/d to now stand at 2.5 mb/d. China’s strict anti-Covid measures and global economic uncertainty are the main reasons. Demand for OPEC crude in 2022 is revised down by 0.1 mb/d from the previous month’s assessment to stand at 28.6 mb/d, which is around 0.5 mb/d higher than in 2021. Demand for OPEC crude in 2023 is also revised down by 0.2 mb/d from the previous month’s assessment to stand at 29.3 mb/d, which is 0.7 mb/d higher than in 2022. OPEC expects that it will need to pump an average of 28.92 million barrels a day of crude to satisfy demand during the fourth quarter, keeping the market in surplus.
• The National Bank of Poland published September balance of payments data today. The current account deficit shrank to €1.56bn from €3.33bn. The trade deficit fell from €2.64bn to €2.05bn with exports (€28.5bn from €25.75bn) rising faster than imports (€30.55bn from €28.39bn). The issue is mainly located in the goods industry with services posting a small surplus. High nominal dynamics of trade in goods were primarily the result of strong increases in transaction prices on both exports and imports. In contrast, real changes remained relatively small.