The markets have seen some interesting movements this week, with Bund underperforming against US Treasuries and UK gilts. This led to European money markets slightly reducing bets on ECB rate cuts. Despite the recent repricing, the terminal rate has been lowered to less than 2%. While the current economic data may not seem very promising, the supportive monetary policy stance might not be necessary. Keep an eye on this week’s PMI data, especially the German PMI on Friday, as it could provide valuable insights into the economy’s direction.
Greek Prime Minister Mitsotakis announced plans to repay at least €5bn of debt next year under the Greek loan facility. This repayment includes debts with maturities ranging from 2033 to 2043. Greece has been able to make significant repayments thanks to good growth and high primary surpluses, which have helped reduce the debt ratio from 207% of GDP in 2020 to an expected level below 150% in the coming year. This improvement in public finances has also led to Greece regaining its investment grade status at S&P and Fitch.
On the other hand, the Czech National Bank has highlighted the need for some degree of restriction to maintain low core inflation, especially as we enter a phase of higher inflation volatility around central bank targets. Governor Michl suggested that core inflation may need to be slightly below 2%, which could impact the CNB’s rate cut decisions in the future. The CNB recently cut its policy rate by 25 bps to 4% in November, with discussions underway about pausing rate cuts at the December policy meeting.
In the world of currencies, the euro has been showing some strength after a challenging start to November. The EUR/USD pair has risen to 1.057, while EUR/GBP is trading around 0.837. The Japanese yen, on the other hand, has underperformed following a speech by Ueda, the Bank of Japan governor. Despite some fluctuations, USD/JPY remains below 155. The US rates have seen some variations, with a flattening move in Europe but a steepening move in the US.
Overall, the markets are experiencing mixed movements, with different regions showing varying trends. It will be interesting to see how these developments unfold in the coming weeks and what impact they may have on the global economy.
