Core bonds rallied again yesterday, especially in the US, while German bonds had to settle with only minor gains. The US 10-year yield slumped by 5bp to 3-week lows, while the German 10-year yield retreated by around 1bp. Curves saw some more bull-flattening. Intra-Euro-area spreads widened, with especially Greek bonds taking a hammering.
The last day of the third quarter is set to keep core bonds supported today and spreads under widening pressure, but as core yields have dropped quite a bit already in the past few weeks, the moves should not be large.
Equity markets felt broad-based pressure, but in the end the losses for European and US equities were rather limited (S&P 500 down by 0.25%). Asian markets are trading mostly lower this morning, but have recovered from their intraday lows, and European markets are set to open close to flat.
Catalan referendum challenged in the constitutional court
As expected, the Spanish government challenged the Catalan independence referendum in the constitutional court, which issued a preliminary suspension of the vote until there is a ruling on the case. Meanwhile, the rating agency Fitch put its BBB- rating on Catalonia on negative watch, reflecting increased tensions between the central and regional government of Catalonia following the latter’s unilateral call for a non-binding consultation on the future of the region within Spain or as an independent country, on 9 November.
Catalonia will likely continue preparations for the vote, something the Spanish government had said should be halted as well, but the actual vote may not take place without authorization by the court, which does not look likely. In any case, Spanish bonds are likely to feel pressure due to the Catalan issue.
Economic sentiment confirms the loss of momentum
The Euro-area economic sentiment indicator for September retreated from 100.6 to 99.9, the third drop in the past four months and pointing to a loss of momentum in the Euro-area economy. Confidence fell markedly in Belgium, Greece and Austria, while it plunged in Finland. Among bigger Euro-area countries, confidence is currently at best levels in Spain, followed by Germany. Interestingly, Spanish confidence overtook the German one for the first time in more than five years in September.
Too low for comfort
The flash estimate for Euro-area September inflation will be out today at 11:00 CET. Inflation likely slipped further in September from the subdued 0.4% y/y in August, and the same probably applied to the core rate, something that could add to worries of too low inflation. Subdued near-term inflation numbers should be expected by the ECB, but further downside surprises would add pressure on the central bank. Another downside surprise today does not look likely in light of the slightly higher-than-expected German numbers yesterday, though.
In the US, S&P / Case-Shiller house price index will be out at 15:00 CET, the Chicago PMI at 15:45 CET and Conference Board consumer confidence at 16:00 CET.
In central bank speeches, the ECB’s Nowotny, Lautenschläger and Visco will speak at 9:00 CET, Makuch at 13:00 CET and the Fed’s Powell at 16:45 CET.
Nordea