Oil prices hover near yesterday’s close

Markets

The US dollar spared no one yesterday. Backed by some UST underperformance, the greenback rallied against all of its major peers. The trade-weighted index rose towards but nevertheless closed below 98. EUR/USD wiped out the gains of the previous two sessions by declining from 1.18+ to 1.1738, losing the short-term upward trendline in the process. Cable (GBP/USD) finished at the lowest level in three weeks (1.3447) and USD/JPY tested the highest levels in around two months. The pair pushed beyond the 200dMA with a close at 148.9. US yields marched higher, locking in gains between 1.8 and 4.9 bps, the belly underperforming the winds. This contrasted with the yields status quo in Europe and Germany or the slight decline at the long end in the UK. With views at the Fed differing so much, US yields find it difficult to find a balance the way European ones do. Chicago Fed Goolsbee was the latest one to challenge the Fed’s median dot plot (showing two more cuts this year). He’s uncomfortable to overly frontload rate cuts “on the presumption that inflation will probably just be transitory and go away”. Goolsbee was less concerned on the labour market, in a view that chimes with the one from Daly. The SF Fed supported last week’s cut and said that further adjustments may be necessary but it should be approached with caution. Daly noted the labour market has slowed but was not weak and the economy not at risk of a recession. It’s these kind of comments that help yields bottom out for the time being.  A lot of Fed policymakers again hit the wires today, capable of triggering some intraday volatility. Economic data includes the weekly jobless claims, durable goods orders and housing data. Usually of second-tier importance, although last week’s sharp drop in jobless claims didn’t go unnoticed. Both the US dollar and yields are steady going into the releases. A strong auction this morning of very long-term Japanese bonds (40-yr) eased some demand concerns for now. Japanese yields drop a few bps in a flattening move in response. A mixed equity performance in Asia this morning offers little guidance for the European open. Wall Street indices yesterday struggled near the record highs. Oil prices hover near yesterday’s close. The black gold had a strong two days, potentially related to risks of the Russia-Ukraine war escalating (Brent $69/b). It chimes with the CE FX underperformance, particularly by the zloty yesterday.

News and views

The Czech National Bank held its policy rate stable at 3.5% yesterday. In order to maintain inflation near the 2% target in the long term, a relatively tight monetary policy is still required. Latest data confirm an economic recovery primarily based on domestic demand while inflation is expected to stay in the upper half of the tolerance band for the rest of the year (2-3%). Risks around the outlook are inflationary overall stemming from food prices, inertia in services inflation including imputed rent, rapid wage growth in a tight labour market, the potential economic boost growth from domestic and European fiscal spending, a recovery in lending activity and the launch of the EU Emissions Trading System 2 in 2027. A stronger CZK FX rate fails to compensate for these potential inflationary pressures. Czech money markets don’t expect policy rate stability over the next year or so. CNB governor Michl said at the press conference that the central bank leaves all options open though and that it can’t be ruled out that the next step will be either lowering or increasing rates. This caused some weakness in CZK with EUR/CZK closing 24.31 up from a 19-month low at 24.21.

New EU car registrations rose by 5.3% Y/Y, but are 0.1% lower YtD compared to the same period last year. Up until August, hybrid electric vehicles (HEV) are the preferred choice amongst consumers. This time around last year, these were still petrol cars (34.9%). HEV’s EU market share rises from 29.7% in the Jan-Aug 2024 period to 34.7% YtD in 2025. Battery-electric cars accounted for 15.8% of market share (up from 12.6%). Germany, Belgium, the Netherlands and France together account for 62% of BEV registrations. The combined share of petrol and diesel cars fell to 37.5%, down from 47.6% over the same period in 2024. In Belgium, petrol cars retain the biggest market share with 42.3% of new registrations YtD (42.6% last year). BEV’s and HEV’s rank 2nd and 3rd with respectively 32.9% (from 25.9%) and 11.4% (from 9.1%) of registrations.

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