Dow continues slide – Rate decisions in focus, with Fed and BoJ tomorrow

EU mid-market update: Healthy UK jobs report ahead of BOE on Thurs; Dow continues slide; Rate decisions in focus, with Fed and BOJ tomorrow.

Notes/observations

- Red US futures puts Dow on track for 9th straight daily decline and takes Nasdaq100 off record highs. Conversely, Europe is mixed, with underperformance in FTSE100 after stronger UK job and wage data which reduced market bets on amount of BOE rate cuts in 2025; The surprise led to a stronger sterling (GBP) but is being cancelled out by a firmer US dollar on the risk off flows. Cable little changed on the day while Euro drops 0.3%.

- Firmer UK wage data and lower unemployment claims reinforces case for Bank of England (BOE) leaving policy unchanged on Thurs, which OIS money markets are pricing at a chance of 95%. Jobless Claims sank to -0.3K (net job gain) against 10.9K losses last month, while ILO Employment Chang on 3-month/3-month basis smashed estimates at +173K against +5K consensus. Weekly earnings were highest since May at 5.2% v 4.6% estimate.

- Germany IFO Business Climate and ZEW Current Situation surveys both hit post-pandemic lows at 84.7 and -93.1, respectively, following weak flash manufacturing PMI’s yesterday. Reminder that French manufacturing PMI also hit a pandemic low.

- Premarket weakness in Nvidia shares being attributed to TF International analyst Ming-Chi Kuo saying his latest supply chain survey indicated that AOS’s DrMOS being tested for Nvidia’s GB300/B300 system were experiencing “severe thermal issues” and Nvidia may take proactive measures to avoid delays in GB300/B300 mass production.

- Bitcoin hits another ATH at $107.8K, consolidating above sentimental $100K level.

- As typical for year end, agencies/ministries publish annual reports and plans for 2025: ECB published an annual report on bank capital requirements and German Debt Agency announced up to €380B of debt issuance for 2025, a drop of ~13% compared to 2024.

- Asia closed mixed with Nifty50 underperforming -1.4%. EU indices are -0.8% to +0.2%. US futures are -0.3% to -0.1%. Gold -0.5%, DXY +0.2%; Commodity: Brent -0.6%, WTI -1.3%; Crypto: BTC +2.4%, ETH +2.0%.

Asia

- Australia Dec Consumer Confidence Index: 92.8 v 94.6 prior.

- Singapore Nov Non-oil Domestic Exports M/M: 14.7% v 9.2%e; Y/Y: +3.4% v -1.; Electronic Exports Y/Y: 23.2% v 2.6% prior.

- China govt said to target 2025 budget deficit to GDP ratio of 4% [would be highest on record]. Targeting 2025 GDP ~ 5%.

- China Premier Li Qiang held State Council study session and called for urgency implementing economic work and would continue to optimize the business environment.

- PBOC confirmed China and the US working group held final 2024 meeting; the two sides exchanged view on monetary policies, capital markets as well as financial and economic situations.

- Japan Economic Revitalization Min Akazawa stated that was closely watching outcome of income tax ceiling talks. Reiterated specifics of monetary policy should be left up to BOJ, expected BOJ to work closely with the government.

- New Zealand Treasury Half-Year Economic & Fiscal Update noted that an economic Recovery was expected from early 2025. Forecasted FY25 Budget deficit at 4.1% of GDP.

Europe

- ECB's Schnabel (Germany) stated that should proceed with caution and remain data dependent. Lowering policy rates gradually towards a neutral level was the most appropriate course of action.

- German Chancellor Scholz lost confidence vote in Parliament as country now prepares for elections (**Note: Current proposed date is Feb 23rd 2025).

- Bank of France (BdF) updated its economic forecasts which cut the 2025 GDP growth from 1.2% to 0.9% and cut the 2026 GDP growth from 1.5% to 1.3%. BdF raised the 2025 HICP Inflation from 1.5% to 1.6% while maintaining the 2026 HICP Inflation at 1.7%.

- French National Assembly (lower house) adopted stopgap bill for 2025 to avoids government shutdown.

Americas

- Liberal member [PM Trudeau's own party] Chad Collins calls on Canada PM Trudeau to 'resign’. Canada Finance Min Freeland resigned.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.32% at 514.18, FTSE -0.69% at 8,205.20, DAX +0.02% at 20,317.96, CAC-40 +0.07% at 7,362.40, IBEX-35 -0.73% at 11,704.00, FTSE MIB -0.62% at 34,526.00, SMI -0.01% at 11,687.50, S&P 500 Futures -0.28%].

Market focal points/key themes: European indices open generally lower and trended further into the red through the early part of the session; lack of risk appetite attributed to upcoming risk events later in the week, with yields rising; less negative sectors include technology and financials; sectors leading the way lower include energy and health care; oil & gas subsector falling along with price of Brent over demand concerns; UK CMA will not refer Carlsberg-Britvic merger to Phase 2 investigation; Land Securities acquires stake in Liverpool ONE shopping center; reportedly CVC and Bain interested in buying Vivendi’s Telecom Italia stake; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Britvic [BVIC.UK] +1.0% (UK CMA decides not to refer Carlsberg / Britvic merger to a phase 2 investigation), Jungheinrich [JUN3.DE] +2.5% (CitiGroup raised to buy), Bunzl [BNZL.UK] -4.5% (trading update; notes deflation).

- Energy: Thyssenkrupp Nucera [NCH2.DE] +8.0% (Q4 results, guides initial FY25) - Financials: Intrum [INTRUM.SE] -3.5% (said to be in settlement discussions with some 2025-maturity bondholders).

-Healthcare: Sanofi [SAN.FR] -0.5% (notes Q4 EPS to see FX impact of -5% to -4%; US Pres-elect Trump vowed to “knock out the middle man and get drug costs down”).

- Industrials: Paragon [PGN.DE] +24.5% (Affirms FY24 Rev €135-140M; Guides initial FY25 EBITDA €20-22M, Rev €140-145M), Chemring Group [CHG.UK] -9.5% (earnings; does not renew share buyback), Capita [CPI.UK] -7.5% (trading update) - Technology: Infineon Technologies [IFX.DE] +0.5% (TF International analyst Ming-Chi Kuo: The DrMOS chips currently being tested for the NVidia GB300/B300 system are AOS’s 5x5 and MPS’s 5x6 and latest supply chain survey indicates that AOS’s DrMOS were experiencing severe thermal issues) - Real Estate: Persimmon [PSN.UK] -0.5% (UK yields rising following wages data).

Speakers

- ECB’s Rehn (Finland) commented that data to decide speed and scale of rate cuts; Cuts would support economic growth. Monetary policy would cease to be restrictive during late winter - early spring.

- ECB's Kazimir (Slovakia) noted that inflation risks were well balanced; To discuss neutral rate once near the 2.5% area.

- ECB published paper on bank capital requirements; Imposed additional capital charges on 13 euro zone banks this year, more than double y/y; Improved liquidity requirements on four banks.

- Swiss Dec SECO Economic Forecasts cut 2024 GDP growth forecast from 1.2% to 0.9% and cut 2025 GDP growth forecast from 1.6% to 1.5%. Seco cut the 2024 CPI from 1.2% to 1.1% and cut 2025 CPI from 0.7% to 0.3%.

- Swiss KOF Institute Winter Economic Forecast cut 2024 CPI from 1.2% to 1.1%, cut 2025 CPI from 0.7% to 0.5% and cut 2026 CPI from 0.7% to 0.6%. KOF cut the 2024 GDP growth from 1.1% to 0.9% while raising the 2025 GDP from 1.6% to 1.7%.

- Finland Central Bank (BoF) updated its economic forecasts which maintained 2024 GDP growth at -0.5% while cutting the 2025 GDP growth from 1.1% to 0.8%. Finland cut the 2024 CPI from 1.1% to 1.0% while raising the 2025 CPI from 1.8% to 1.9%.

- German ZEW Economists commented that the economic outlook was improving and was expecting more rate cuts in 2025. Believed the recent rise in inflation was temporary phenomenon.

- Bank of Korea (BOK) Nov Minutes noted that it had no plan to hold extra meeting in Dec to cut rates. One member noted that monetary policy should respond to economic shocks promptly and flexibly to fulfill policy mandates. One dissenter noted that the timing and pace of further rate cuts should be determined after monitoring changes in household debt and KRW FX rate. A member stated that FX volatility to continue for a considerable time.

- Bank of Korea (BOK Gov) Rhee commented that saw downside risk to 2024 GDP growth forecast of 2.2%.

- India Fin Min Sitharaman commented that the country to see growth in coming quarters.

Currencies/fixed income

- Markets await the plethora of rate decisions later in the week with FOMC on Wed, BOE on Thurs and BOJ on Fri. FX price action to depend on the degree of divergence in policy setting among the global central banks.

- EUR/USD moved below the 1.05 level as continued weak economic data emerge out of Europe. The German IFO Survey saw the expectations miss consensus and below month ago levels. ECB speak continued to highlight that rate cuts would support growth.

- GBP/USD moved higher to test above the 1.27 level as UK wage data continued to run ‘hot’ thus supporting expectations for the BOE would remain cautious about cutting interest rates. BOE futures now saw 63bps in rate cuts in 2025 v 69bps before UK average hourly earnings data.

- USD/JPY probe the 154.30 area before retracing a portion of its 6 day of gains. BOJ seen keeping policy steady in Dec and likely hike in early 2025.

Economic data

- (UK) Nov Jobless Claims Change: +0.3K v -10.9K prior; Claimant Count Rate: 4.6% v 4.6% prior; Payrolled Employees (monthly change): -35K v -10Ke.

- (UK) Oct Average Weekly Earnings 3M/Y: % v 4.7%e; Weekly Earnings (ex-bonus) 3M/Y: % v 5.0%e.

- (UK) Oct ILO Unemployment Rate: % v 4.3%e; Employment Change 3M/3M: K v +5Ke.

- (ZA) South Africa Oct Leading Indicator: 114.0 v 112.8 prior.

- (ES) Spain Q3 Labour Costs Y/Y: 4.4% v 4.1% prior.

- (HK) Hong Kong Nov Unemployment Rate: 3.1% v 3.1%e.

- (DE) Germany Dec IFO Business Climate Survey: 84.7 v 85.5e; Current Assessment Survey: 85.1 v 84.0e; Expectations Survey: 84.4 v 87.5e.

- (IT) Italy Oct Total Trade Balance: €5.2B v €2.6B prior; EU Trade Balance: -€0.7B v -€1.2B prior.

- (DE) Germany Dec ZEW Current Situation Survey: -93.1 v -92.6e; Expectations Survey: 15.7 v 6.9e.

- (EU) Euro Zone Dec ZEW Expectations Survey: 17.0 v 12.5 prior.

- (EU) Euro Zone Oct Trade Balance: €6.1B v €11.6Be; Trade Balance NSA (unadj): €6.8B v €12.5B prior.

Fixed income issuance

- (ID) Indonesia sold total IDR7.1T vs. IDR8.0T target in Islamic bills and bonds (sukuk).

- (UK) DMO sold £3.75B in 4.125% July 2029 Gilts; Avg Yield: 4.348% v 4.148% prior; bid-to-cover: 2.90x v 3.05x prior; Tail: 0.8bps v 0.8bps prior.

Looking ahead

- (US) Electors cast votes from Nov election.

- (AR) Argentina Nov Budget Balance (ARS): No est v 746.9B prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:15 (CH) Switzerland to sell 3-month Bills.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:30 (TR) Turkey to sell bonds (2 tranches).

- 06:00 (IL) Israel Q3 Current Account Balance: $5.5Be v $5.0B prior.

- 06:00 (BR) Brazil Central Bank (BCB) Dec Minutes.

- 06:30 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 07:00 (MX) Mexico Oct Retail Sales M/M: 0.2%e v 0.1% prior; Y/Y: -1.0%e v -1.5% prior.

- 07:00 (MX) Mexico Oct Gold Production: No est v 5.5K kg prior; Silver Production: No est v 332.5K kg prior; Copper Production: No est v 42.7K tons prior.

- 07:00 (ES) Bank of Spain (BOS) updates its economic outlook.

- 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: Expected to leave Base Rate unchanged at 6.50%.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Nov Advance Retail Sales M/M: 0.5%e v 0.4% prior; Retail Sales (ex-auto) M/M: 0.4%e v 0.1% prior; Retail Sales (ex-auto/gas): 0.4%e v 0.1% prior; Retail Sales (control group): +0.4%e v -0.1% prior.

- 08:30 (US) Dec New York Fed Services Activity: No est v -0.5 prior.

- 08:30 (CA) Canada Nov CPI M/M: 0.1%e v 0.4% prior; Y/Y: 2.0%e v 2.0% prior; CPI Core-Median Y/Y: 2.4%e v 2.5% prior; CPI Core-Trim Y/Y: 2.6%e v 2.6% prior; Consumer Price Index: 161.9e v 161.8 prior.

- 08:30 (CA) Canada Oct Int’l Securities Transactions: No est v 29.3B prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (HU) Hungary Central Bank (MNB) Policy Statement.

- 09:15 (US) Nov Industrial Production M/M: +0.2%e v -0.3% prior; Capacity Utilization: 77.3%e v 77.1% prior; Manufacturing Production: +0.4%e v -0.5% prior.

- 10:00 (US) Dec NAHB Housing Market Index: 46e v 46 prior.

- 10:00 (US) Oct Business Inventories: 0.2%e v 0.1% prior.

- 13:00 (US) Treasury to sell 3-Year Notes.

- 15:00 (NZ) New Zealand Q4 Westpac Consumer Confidence: No est v 90.8 prior.

- 16:00 (CL) Chile Central Bank (BccH) Interest Rate Decision: Expected to cut Overnight Rate Target by 25bps to 5.25%.

- 16:30 (US) Weekly API Oil Inventories.

- 16:45 (NZ) New Zealand Q3 Current Account Balance (NZD): No est v -4.8B prior; Current Account to GDP Ratio YTD: No est v -6.7% prior.

- 18:00 (HU) Hungary Dec Business Confidence: No est v -11.3 prior; Consumer Confidence: No est v -31 prior; Economic Sentiment: No est v -16.4 prior.

- 18:50 (JP) Japan Nov Trade Balance: -¥461.2Be v -¥462.1B prior; Adjusted Trade Balance: No est v -¥357.7B prior; Exports Y/Y: No est v 3.1% prior; Imports Y/Y: No est v 0.4% prior.

- 20:30 (KR) Bank of Korea (BOK) to sell KRW800B in 3-year Bonds.

- 22:30 (JP) Japan to sell 12-Month Bills.

- 23:00 (MY) Malaysia Nov Trade Balance (MYR): No est v 12.0B prior; Exports Y/Y: No est v 1.6% prior; Imports Y/Y: No est v 2.6% prior.