Markets
US market moves suggested investors reduced the ‘established Trump-trade’ to position to a more neutral one with a survey showing Harris potentially taking the lead in Iowa driving the move. After rising substantially on Friday, US yields faced a material setback in Asia and most of this this was maintained later in the session. US yields declined between 4.5 bps (2-y) and 10.3 bps (30-y). However, with the broader picture still pointing to a close neck-and-neck race, it’s useless to draw any conclusions. It probably was nothing more than the erratic swings one can expect in thinned market conditions ahead of major event risk. A $58 bln US Treasury auction was awarded at 4.152%, slightly above the WI bid (4.143%), slightly reinforcing the underperformance of bonds at the short end of the US yield curve. German yields changed between +1.7 bps (2-y) and -4.9 bps (30-y). EMU interest rate markets after last week’s higher than expected EMU Q3 growth and CPI data are coming to understand that it won’t be evident for the ECB to accelerate the pace of rate hikes to a 50 bps step at the December meeting. The dollar copied the electionrelated setback in US yields. After closing at 104.28 on Friday, the DYX index tested the 103.6 area to finish the day off the intraday lows at 103.88. EUR/USD filled offers north of 1.09, but later also returned part of the intraday gains to close at 1.0878. Similar story for USD/JPY (close 152.13 from 153.01 on Friday). US equities lost modest ground (S&P 500 -0.28%). Brent oil tries to regain the $75 bp handle. After outperforming the euro on Friday, sterling yesterday hovered around the EUR/GBP 0.84 pivot as markets look forward to the BOE’s assessment on fiscal policy at Thursday’s policy meeting/monetary policy report.
Asian equities trade mixed to positive this morning with China outperforming. The China Caixin Services PMI improved more than expected from 50.3 to 52.0. The outcome supports confidence that recent stimulus measures might help a rebound in domestic demand. However, the US election also remains a big source of uncertainty for the overall performance of the Chinese economy going forward. On ‘global markets’ US yields are trading marginally higher (<1 bp) as investors are counting down to the outcome of the US elections. The dollar is holding little changed (DXY 103.9). In a ‘normal context’ one would today mention the US services ISM as interesting last input for this week’s Fed meeting, but investors won’t feel inclined to adapt positions on the basis of whatever important eco data series at ahead of the election event risk. Later this session, the US Treasury will sell $42 bln of 10-y notes.
News and view
The Reserve Bank of Australia remains one of the hawkish outliers amongst central banks. The central bank kept its policy rate unchanged at 4.35% this morning as underlying inflation (3.5% Y/Y in Q3 2024) remains too high and isn’t expected to sustainably return to the midpoint of the 2-3% inflation target range until 2026. This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. The forecast is backed by a judgement that aggregate demand remains above the economy’s supply capacity, the mere persistence of core price pressures, surveys of business conditions and ongoing strength in the labour market. Weak output growth is expected to recover from H2 2024 onwards, but that outlook remains highly uncertain. Australian money markets put the probability of a first rate cut in February, when new forecasts are available, at roughly 40%. A full 25 bps rate cut is only discounted by the May 2025 meeting. AUD/USD is marginally stronger this morning at AUD/USD 0.66.
Data from the British Retail Consortium (BRC) show that total UK sales increased by 0.6% Y/Y in October, down from 1.7% in September and below 1.4% consensus. Food sales were 2.9% higher Y/Y with non-food sales 0.1% Y/Y lower. The disappointing result can be partly explained by a later October half-term in England, mild weather (deterring spending on winter clothes) and by uncertainty before the budget and rising energy bills. The promotional weeks around Black Friday will be the first real test of post-budget consumer sentiment.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
Recommended Content
Editors’ Picks
EUR/USD trades sideways below 1.0450 amid quiet markets
EUR/USD defends gains below 1.0450 in European trading on Monday. Thin trading heading into the Xmas holiday and a modest US Dollar rebound leaves the pair in a familair range. Meanwhile, ECB President Lagarde's comments fail to impress the Euro.
GBP/USD stays defensive below 1.2600 after UK Q3 GDP revision
GBP/USD trades on the defensive below 1.2600 in the European session on Monday. The pair holds lower ground following the downward revision to the third-quarter UK GDP data, which weighs negatively on the Pound Sterling amid a broad US Dollar uptick.
Gold price sticks to modest gains; upside seems limited amid USD dip-buying
Gold price attracts some follow-through buying at the start of a new week and looks to build on its recovery from a one-month low touched last Thursday. Geopolitical risks stemming from the protracted Russia-Ukraine war and tensions in the Middle East, along with trade war fears, turn out to be key factors benefiting the safe-haven precious metal.
Let’s focus on the good for a few more days
Last week was chaotic. The Fed’s hawkish 25bp cut, the hint from the dot plot that there would be only two rate cuts next year instead of four – because the US economy is too strong to continue the cuts as previously predicted - and the US debt limit shenanigans even before Trump took office gave a negative jolt to the US stock markets.
Bank of England stays on hold, but a dovish front is building
Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.