Markets

US presidential election polls remain talk of town in an otherwise uninspiring trading session. Trump’s momentum was already dented last week following some swing-state polls. They took away his narrow lead in prediction models, putting both candidates at exactly 50%. Focus today switched to an Iowa survey which put Harris ahead in the hawkeye state won by Trump on the previous two occasions. The result is an outlier when compared to other Iowa election polls. Anyway, the resulting market volatility is the one we simply have to deal with on the eve of the potentially closest US presidential elections since 2000. In a so far one-off reset at the start of Asian trading (thinned by the way by Japan’s public holiday), US yields succumb 7 bps (2-yr) to 11 bps (10-yr). German yields changes range between +3 bps (2-yr) and -3 bps (30-yr) as EMU money markets continue paring 50 bps rate cut bets for December following last week’s Q3 GDP and October CPI data. The dollar faced a setback with the trade-weighted greenback currently changing hands around 103.75 compared with Friday’s close at 104.35. EUR/USD spends time around the 1.09 big figure and even USD/JPY gets some more breathing space (152). Sterling trades volatile around 0.84 awaiting the Bank of England’s interpretation of last week’s 2025 Budget. Upward growth and CPI forecasts are expected to tie the BoE’s hands for somewhat longer in the policy normalization cycle. Any indications to endorse BoE governor Bailey’s proposed activism could tip the balance again in sterling’s and UK Gilt’s disadvantage.

Belgian OLO’s slightly outperform against French OAT’s today. The move feels counterintuitive at first given that NVA De Wever handed in his resignation with the King as “formateur” in deadlocked federal government coalition talks (almost 5 months since ballot). Flemish centre-left socialists of Vooruit are getting cold feet about entering a centre-right government (ARIZONA: Christian democrats (CD&V and Les Engagés), French speaking Liberals MR, Flemish rightwing NVA) aiming to tighten fiscal policy. The King didn’t accept the resignation (yet), giving De Wever an additional week to find common ground or an alternative. Replacing Vooruit by Flemish Liberals of OpenVLD is a route suggested by other party leaders. OpenVLD got slaughtered in elections, opting for a time in opposition. Joining (or backing) the ARIZONA-government would give the smallest of majorities (76/150) and be extremely fragile but in any case reform-minded. Flemish parties should then be willing to give away their relative majority with the government. There’s little appetite for a fresh ballot, especially on the French-speaking side as election winning MR and Les Engagés failed to hold momentum into October local elections. They don’t want to risk bringing back the socialists of PS into the equation.

News & Views

The Turkish disinflation process proceeds at a slower than expected pace. Headline inflation in October ‘eased’ to 2.88% M/M and 48.6% Y/Y compared to 2.97% M/M and 49.4% in September. In a month-on-month perspective, price rises were mainly driven by a higher prices for clothing and footwear (+14.32 %) and food and non-alcoholic beverages (4.33%). Transportation costs declined 0.54% M/M. In a Y/Y comparison, a 93.66% rise in prices for education and 89.39% rise in housing costs are catching the eye. Core inflation (excluding food, energy and gold) printed at 2.79% M/M and 47.75% Y/Y, close to expectations. At the September policy meeting, the CBRT kept its policy rate unchanged at 50%, but turned more cautious on the room for policy easing after higher than expected September inflation. Later this week governor Karahan presents a new CBRT quarterly inflation report, which will be key for markets to assess the timing of a first rate cut. Higher than expected September and October inflation has reduced chances for a start of the easing cycle in December (or even January).

German companies turned more cautious on their personnel planning, according to the IFO employment barometer which declined from 94 in September to 93.7 in October, the weakest level since July 2020. In a comment on the IFO website, the head of IFO surveys analyses that “the situation in the labour market has been on a negative trend for months, not sharply, continuously”. Rather than filling vacancies he assumes that companies are more likely to lay off employees. The index for manufacturing dropped again as fewer employees are needed due to the difficult order situation. A similar narrative holds for trade, but the indicator rose slightly. Regarding service providers, positive and negative responses are reported almost in balance. The same applies to construction. The IFO survey still sees demand for new employees in tourism and the IT sector.