The energy price narrative is unchanged for now

KBC Market Research Desk KBC Bank

Markets

From the three dominant trading themes since early last week, one is trying to turn the narrative. Equity sentiment improved yesterday with main European benchmarks rebounding over 1%. From a technical perspective, the EuroStoxx50 for now remains trapped in a narrow downward trend channel/sell-on-upticks pattern though. A move above 6250/6300 (from yesterday’s close at 6207) is needed to fend off more downside alert and morph to a more sideways trading pattern. Key US indices gained 0.5% to 1% with Nasdaq outperforming a first time since questions popped up about financing the build-out of the AI-infrastructure. Better-than-expected earnings from Meta and Tesla after market fail to inspire follow-up action in equity futures with initial gains gradually wiped out. First important technical support in the Nasdaq (26k) was tested last week. It stood its ground, but remains nearby (26702 close yesterday). Asian AI-proxy (stock) markets this morning lose 3% (Hong Kong) to 4% (South Korea).

The energy price narrative is unchanged for now, with both Brent and gas prices holding close to highs. Since May for Brent crude (>$110/b) and since 2022 for European gas (€90/MWh area). Upward pressure comes this morning from the NY Times reporting on specific plans by the US and Israeli militaries for renewed strikes against Iran after the US midterm elections. The newspaper also reports on a leaving order for non-government employees and their families in Saudi Arabia as Houthi attacks in the country rise. Higher-than-assumed energy prices will make next week’s likely unchanged policy decisions by both the Fed and the ECB a tough sell to the audience with more work to be done. In this respect, the recent money market corrections (towards discounting a slower tightening cycle with a lower cycle peak) might be challenged.

Finally, there’s the EMU sovereign spread story line with bond markets keeping pressure high on European governments to come up with credible fiscal consolidation plans in current budget rounds. The 10-yr French OAT- swap and Belgian 10-yr OLO-swap spreads added 6 bps yesterday to respectively 148 bps and 90 bps. They both underperformed Italy in the process (+4 bps to 104 bps). Specifically for Belgium, PM De Wever failed to reach this morning’s hoped-for deadline as one of the five coalition partners (centre-left Vooruit) remains at odds with the proposed multi-annual consolidation effort (€10bn). Given parliamentary recess, a deal by the end-of-the-month still seems to be the best-case scenario. Bond markets in the meantime won’t let down pressure which weighs on most EUR-crosses. Stabilization in EUR/USD around 1.12 is remarkable in this respect.

News and views

The new EU passenger car market showed notable resilience, with registrations rising 5.7% YTD and 9.3% on a 12- month trend basis in September despite a challenging macroeconomic environment, the European Automobile Manufacturers’ Association said. Up until September 2026, battery-electric cars (BEV) secured a 22.7% share of the EU market, up from 16.1% a year earlier. Three of the four largest EU markets, which together accounted for 64% of all BEV registrations, recorded strong growth: France (+79.1%), Germany (+58.1%), and Denmark (+40.3%). Belgium posted a 15.7% increase. Hybrid-electric car (HEV) registrations captured 36.3% of the market, remaining the preferred choice among EU consumers. Italy (+20.8%) and Spain (+20.5%) posted strong growth while Belgium stagnated (+0.8%). The combined market share of petrol and diesel cars fell to 28.2%, compared with 36.9% a year earlier. Petrol car registrations in Belgium fell 5.6%, diesel by 21.3% YtD compared to the same period last year.

The Bank of Korea kept the policy rate at 3% this morning, taking a break after two consecutive 25 bps hikes. The status quo is likely a pause rather than full stop. The central bank sees growth significantly outpacing the August forecasts (which stood at 3.3% and 2.9% for 2026 and 2027) and inflation running higher next year. It therefore kept guidance for future rate increases. The decision was a unanimous one, revealing a broad desire to assess the impact of the previous tightening and against the backdrop of increased AI-related risks. The BoK cited concerns about slower AI-spending, heavy issuance of related bonds and increased stock market volatility. Governor Shin during the press conference sounded less worried and prioritized upside growth and inflation risks to those to the downside. The South Korean won steadies near the recent 2-yr highs against the dollar around USD/KRW 1234.1.

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KBC Market Research Desk

KBC Bank

KBC's Market Research Desk publishes a number of short-term reports.

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