Hesitation was the prevailing mood in global markets on Friday. More and more topics are coming to the fore, potentially derailing the downside buying momentum that has dominated risky asset / equity trading for much of the (post-) pandemic era. . Markets believe the point at which monetary stimulus will be extended is near, with the looming weakening of the Fed (and later the ECB). Yet the recovery faces multiply obstacles, ranging from uncertainty over the ST development of the pandemic, to the potential impact on growth of soaring commodity and energy prices, to several potential political headwinds (Chinese regulations, US debt ceiling ) or other risk of events (Evergrande). US and European stocks ended with losses of up to 1.0%. At a time, The basic safe haven bonds did not benefit. German rates extended their protracted rebound, rising 0.8bp (2yr) to 2.2bp (10 & 30yr). Comments / titles on several members of the ECB (Lane, Kazaks…) assessing whether inflation could turn out to be higher than the September ECB forecasts have served as a “sign of the times” for European bond investors even though the comments remained “two-way”. The German 10-year rate tested the resistance of -0.27%, hitting its highest level in more than two months. US rates rose 2.4bp, the belly of the curve (10 years and 5 years underperforming). Real returns were the driving force. Early in the session, EUR / USD was supported by rising EMU yields, but sA safe haven purchase ultimately saw the dollar win the intraday battle. EUR / USD closed at 1.1725. Aside from the Euro, the Yen (close USD / JPY 109.93) and Swiss franc (close EUR / CHF 1.093) were unable to compete with the safe haven offer of the USD, possibly due to rising real yields . The damage to sterling could have been greater given the combination of risk aversion and poor UK retail sales in August. EUR / GBP closed at 0.8537).
Several major Asian markets (Japan, Mainland China, Korea) are closed for regional holidays. However, the indices in Hong Kong (-3.4%) and Australia (-1.9%) show that the risk-off still dominates, with the fate of Chinese real estate developer Evergrande and the continuing sharp decline in iron ore serving as a catalyst for investor uncertainty. In tight markets, the dollar remains in pole position (DXY 93.3; EUR / USD 1.1720).
Today’s ecological calendar contains only second-level data, letting markets count until several central bank meetings scheduled for later this week including Hungary and Norway (Tuesday), the Fed and BOJ (Wednesday) and the BoE, Norges bank and the Swiss National Bank (Thursday). We assume that there will be no profound change in the risk aversion correction before the Fed meeting. This favors the dollar, with 1.17 / 1.1664 EUR / USD serving as key support. In the interest rate markets, it may not be easy for the US 10-year to firmly break through the resistance of 1.37%. The uptrend in Germany / EMU swap rates looks more solid, but it is uncertain whether this will help the euro.
decision United Russia Party, who supports President Putin, won a resounding victory in the legislative elections this weekend and prolongs his stay in power. The Central Election Commission placed the party at nearly 48% of the vote with 64% of the ballots counted. The Communist Party comes in second with 21%. Despite the resounding victory, United Russia lost a little ground compared to the 54% gathered in 2016. The backlash could have been even more important if it had not been for the repression before the ballot by the opposition critic. Kremlin, Navalny. The Russian ruble is not reacting to the news with the EUR / RUB changing hands near 85.50.
UK Business Secretary Kwarteng warned that small energy suppliers are under pressure with large vendors looking for a bailout to help them manage the cost of supporting clients from smaller vendors who might fail. Soaring gas prices have already forced seven uncovered energy suppliers into bankruptcy. Kwarteng will meet with industry heavyweights as well as regulator Ofgem on a third consecutive day of emergency talks. The UK government is not alone in cushioning the blow from soaring gas prices. Italy, for example, will spend around 3.5 billion euros to protect customers, France will distribute 0.58 billion euros to poor households and Spain to plan an additional tax on electric utilities while capping consumer bills.