Europe Summary and Highlights 21 Oct
France remains pressured, euro underperformance limited by recent oversold backdrop
GBP supported by firmer UK CPI
AUD continues short covering lean, RBA’s Hauser helps nudge RBA hike pricing to odds-on
French 10yr yields hit 5% with OAT-bund spread back out to the recent peak wides as pressure persists. Mild euro underperformance, though, as stretched background still containing follow through.
EUR/GBP looking sub 0.84 around the fib support level, cable testing 1.34.
UK inflation comes in firmer than expected at 3.5% vs 3.4% market and running a good ½ pp above its previous projections. Core also up to 2.8% (mkt 2.7%). Keeps market largely priced for a Nov hike.
RBA’s Hauser suggests ‘pretty clear’ that ‘materially worse’ inflation would come in above RBA forecast and that the RBA was in a world of hard choices in terms of protecting the labour market. Nov hike odds nudging above 50-50. Market was at extreme AUD short positioning levels so helping short covering move off AUD/USD double bottom.