• The UK just won’t leave the spotlights these days. It started today with overnight news of Chancellor Kwarteng hurrying to jump on the final flight from Washington DC to London to salvage his unraveling minibudget. Little did he know it was to get sacked. Kwasi Kwarteng out, Jeremy Hunt in. At the time of writing, prime minister Truss is addressing the press with some changes to the budget in an attempt to restore badly bruised investor confidence in the UK. The developments today are the culmination of three weeks of political poker and unnecessary market volatility, at times outright panic. Credit where credit is due: the Bank of England stood by its intentions to end the temporary bond buying programme later today. It twisted the arm of the UK government, forcing it to backtrack on way too lavish spending plans. UK Gilts outperform peers with yields still adding 1.9 bps at the front end but losing 7-15 bps in the middle and long segment. Declines during the day were (more than) double that though, suggesting markets are still wary of UK politics/economics going forward and are awaiting Truss’ press conference. Sterling for this reason is unable to profit. EUR/GBP even ekes out a small gain to 0.867. Cable moves south from 1.132 to 1.126.
• The UK bond surge set the tone for peers, although trading is very choppy. US and German bonds build modestly on yesterday’s impressive intraday comeback. European rates inch 2.1 bps higher at the back-end but lose a few bps at the front and belly of the curve. Yields in the US change between -4.4 bps and +1.4 bps in a similar curve move. September retail sales were met with indifference, being spot on analyst estimates. Headline sales flatlined 0.0%, a little below the 0.2% rise expected but came with a small upward revision for the month before. The control group (a proxy for private consumption in GDP calculations) rose 0.4% vs 0.3% consensus. Michigan consumer confidence has market moving potential but is due after the publication of this report. European stock markets in a catch-up move with yesterday’s WS rally rise 2%+. US indices open with gains less than 1%. The dollar is surprisingly resilient given risk-on circumstances. EUR/USD and DXY are trading unchanged around 0.978 and 112.49. The rule to the exception – you guessed it – USD/JPY. The pair is at the verge of closing beyond the 1998 high, at 147.78.
• The National Bank of Hungary (MNB) returned to ‘emergency modus’. At the September meeting, the MNB raised its policy rate to 13% and signaled the end of its tightening cycle. Markets considered this premature, especially as inflation jumped north of 20.0%. The forint dropped to a new all-time low above EUR/HUF 430. After an emergency policy meeting the MNB this morning announced new measures to restore stability on the (FX) market and to make market conditions contributing to the price stability objective. The MNB launched a one day FX swap, currently with a yield of 17% and overnight deposit quick tenders (currently yielding 18%) aiming to further tightening financial conditions. The MNB also raised the O/N collateralized lending rate from 15.5% to 25%. Still vice-governor Virag indicated that for now, the 13% base rate is considered as in line with current MNB assessment on inflation. The MNB will also provide foreign currency from its reserves to help address the current account deficit caused by the sharp rise in energy prices. The forint rebounded from an opening level near EUR/HUF 428 to EUR/HUF 416 earlier today, the strongest intraday rebound of the forint in more than 10 years (currently EUR/HUF 418.75).
• According data from Eurostat, the EMU in August posted a trade deficit for the 10th consecutive month, rising to €50.9 bln from €34 bln in July. This is a striking change as the region since 2012 succeeded a surplus on a 12 month average basis. Exports in August rose 24% to 282.1 bln, but this was more than offset by a 54% rise in imports. For the Jan/August period the EMU switched from a 124 bln surplus to a 228.8 bln deficit. The deficit is for an important part due to the rise in the energy bill. In a YTD perspective only the Netherlands, Germany and Ireland within the EMU posted a trade surplus. France posted the largest trade deficit (including intra-EU trade) of €123.8 bln.