ECB strong hawk Schnabel talks like a dove

EU mid-market update: ECB strong hawk Schnabel talks like a dove; Services PMI slight upside surprise; Moody's cut China outlook; US JOLTS later.

Notes/observations

- Loss of recent risk appetite seen overnight as key levels and beginning of Dec make traders rethink pricing following recent equity rally.

- EU bond yields dipped after dovish comments from ECB’s Schnabel, who is typically a strong hawk, suggesting a rate cut in mid-2024. EUR currency trended lower as well, but later pared losses as European Service PMIs performed better than expected.

- Attention remains on US job data run this week, kicking off with JOLTS job openings today at 10:00 ET.

- Asia closed lower with Hang Seng under-performing at -2.1%. EU indices are -0.5% to +0.5%. US futures are -0.1% to -0.4%. Gold -0.1%, DXY -0.1%; Commodity: Brent +0.8%, WTI +0.8%, TTF -0.9%; Crypto: BTC +0.4%, ETH -1.7%.

Asia

- China Nov Caixin PMI Services registered its 11th month of expansion (50.7e v 50.4 prior).

- RBA left the Cash Rate Target unchanged at 4.35% (as expected) to resume its pause phase in current tightening cycle. Future decisions to be data dependent. Monthly CPI suggested inflation was moderating. Wages growth was not expected to increase much further and remained consistent with the inflation target.

- Australia Nov Final PMI Services confirmed the 2nd month of contraction (46.0 v 46.3 prelim;

- South Korea Q3 Preliminary GDP unrevised in its 2nd reading) Q/Q: 0.6% v 0.6% advance; Y/Y: 1.4% v 1.4% advance

- South Korea Nov CPI registered its slowest annualized pace since July( M/M: -0.6% v -0.2%e; Y/Y: 3.2% v 3.5%e).

- Japan Nov Tokyo CPI Y/Y: 2.6% v 3.0%e; CPI (ex-fresh food) Y/Y: 2.3% v 2.4%e v 2.7% prior.

- Japan Nov Final PMI Services (confirmsed14th month of expansion but lowest since Nov 2022 (50.8 v 51.7 prelim.

Global conflict/tensions

- Qatar Emir stated that would call on UN Security Council to force Israel to return to the negotiations table. Gaza truce was not an alternative to permanent cease fire.

Europe

- UK Nov BRC Sales LFL Y/Y: 2.6% v 2.6% prior.

- UK Citi/Yougov Oct 12-month inflation expectations Survey was steady at 4.2%. The 5-10 year inflation expectations: 3.5% v 3.3% prior.

- Chancellor of the Exchequer (Fin Min) Hunt stated that the country had fallen into 'low growth paradigm' since great financial crisis in 2008. Consider domestic economy as having a sprained ankle, but not a broken leg.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.14% at 466.42, FTSE -0.20% at 7,497.83, DAX +0.32% at 16,457.05, CAC-40 +0.38% at 7,360.18, IBEX-35 +0.66% at 10,245.87, FTSE MIB +0.29% at 30,002.00, SMI +0.14% at 10,967.60, S&P 500 Futures -0.19%].

Market focal points/key themes: European indices open mixed with a bias to the downside and remained under pressure through the early part of the session; better performing sectors include real estate and materials; while sectors trending lower include communication services and telecom; networking subsector outperforming following agreement between AT&T and Ericsson for radio access networks in the US; focus on release of US JOLTs later in the day; earnings expected in the upcoming US session include AutoZone and JM Smucker.

Equities

- Consumer discretionary: Moonpig Group [MOON.UK] +2.0% (earnings), Ashtead Group [AHT.UK] -3.5% (earnings), Marston’s [MARS.UK] +1.0% (earnings).

- Real Estate: British Land Company [BLND.UK] +1.5% (analyst upgrade).

- Healthcare: Sanofi [SAN.FR] -0.5% (analyst downgrade, research collaboration agreement).

- Industrials: Hapag-Lloyd [HLAG.DE] -2.0% (analyst initiation), Pirelli [PIRC.IT] +3.5% (analyst upgrade).

- Technology: ams OSRAM AG [AMS.CH] +6.0% (Foxconn sees Q4 Rev to be better than expected).

- Telecom: Ericsson [ERICB.SE] +8.0% (new ~$14B contract with AT&T), Nokia [NOKIA.FI] -9.0% (Now expects Rev from AT&T in Mobile Networks will decrease over the next 2-3 years).

Speakers

- ECB's Schnabel (hawk, Germany) stated that could take further rate hikes off the table; the most recent inflation number had made a further rate increase rather unlikely. Policymakers should not guide for rates to remain steady through mid-2024.

- Sweden Central bank (Riksbank) Gov Thedeen noted that the current rate path suggested a 40% chance of a rate hike at the next meeting.

- Moody’s affirmed China sovereign rating at A1; lowered the outlook to negative.

- China Ministry of Finance stated that it expected Q4 domestic economy to keep positive trend. Impact of property market downturn on budget was controllable. Expressed disappointment about Moody's rating outlook cut.

- Libya National Oil Company (NOC) chief Bengdara stated that expected production at 1.4M bpd by end-2024. Planned to raise exports to 1.1M bpd in 2024.

Currencies/fixed income

- FX markets obsessed with potential rate cuts in 2024 by the major central banks. Initially the USD was softer in recent session as participants reassessed bets for the Fed's rate cuts next year. However comments from ECB hawk Schnabel (Germany) took a dovish turn and opened the door for a potential cut by mid-year.

- EUR/USD probed the lower end of the 1.08 level in the aftermath of the Schnabel comments but managed to find some footing. Upward revisions in the European Services PMI readings soothed any near-term easing concerns. ECB Oct Consumer Expectation Survey saw the 1-year CPI Expectations come in above consensus (4.0% v 3.8%e) while the 3-year outlook remained above ECB target.

- USD/JPY again hovered around the 147 handle. Softer CPI data from Japan during the Asian session continued to back the dovish undertones of the BOJ for the time being. Spring wage talks remain key for any policy shift.

Economic data

- (RU) Russia Nov Services PMI: 52.2 v 53.0e (10th straight expansion) ;Composite PMI: 52.4 v 53.6 prior.

- (SE) Sweden Q3 Current Account (SEK): 117.4B v 83.8B prior.

- (ZA) South Africa Nov PMI (whole economy): 50.0 v 48.9 prior (avoided contraction for the 1st time in 3 months).

- (SE) Sweden Nov PMI Services: 48.3 v 48.5 prior (4th straight contraction); PMI Composite: 48.5 v 47.8 prior.

- (FR) France Oct Industrial Production M/M: -0.3% v +0.2%e; Y/Y: 1.8% v 2.8%e.

- (FR) France Oct Manufacturing Production M/M: 0.1% v 0.2%e; Y/Y: +1.0% v -1.2% prior.

- 03:00 (ES) Spain Oct Industrial Production M/M: % v -0.5%e; Y/Y: % v -1.7%e; Industrial Output NSA (unadj) Y/Y: % v -4.1% prior.

- 03:00 (ES) Spain Q3 INE House Price Index Q/Q: % v 2.1% prior; Y/Y: % v 3.6% prior.

- (ES) Spain Nov Services PMI: 51.0 v 51.5e (3rd month of expansion); Composite PMI: 49.8 v 50.7e.

- (TW) Taiwan Nov Foreign Reserves: $567.5B v $561.1B prior.

- (IT) Italy Nov Services PMI: # v 48.3e (4th month of contraction); Composite PMI: 48.1 v 47.1e.

- (FR) France Nov Final Services PMI: 45.4 v 45.3 prelim (confirmed the 6th straight contraction); Composite PMI: 44.6 v 44.5 prelim.

- (DE) Germany Nov Final Services PMI: 49.6 v 48.7 prelim (confirmed the 2nd month of contraction); Composite PMI: 47.8 v 47.1 prelim.

- (EU) Euro Zone Nov Final Services PMI: 48.7 v 48.2 prelim (confirmed 4th month of contraction); Composite PMI: 47.6 v 47.1 prelim.

- (EU) ECB Oct Consumer Expectation Survey: 1-year CPI Expectations: 4.0% v 4.0% prior; 3-year CPI Expectations: 2.5% v 2.5% prior.

- (UK) Nov New Car Registrations Y/Y: 9.5% v 14.3% prior.

- (UK) Nov Final Services PMI: 50.9 v 50.5 prelim (confirmed 1st expansion in 4 months); Composite PMI: 50.7 v 50.1 prelim.

- (UK) Nov Official Reserves Changes: $2.2B v $0.6B prior.

- (ZA) South Africa Q3 GDP Q/Q: -0.2% v 0.0%e; Y/Y: -0.7% v -0.1%e.

- (EU) Euro Zone Oct PPI M/M: 0.2% v 0.2%e; Y/Y: -9,.4% v -9.5%e.

Fixed income issuance

- (ID) Indonesia sold total IDR9.14T vs. IDR9.0T target in Islamic bills and bonds (sukuk).

- (ES) Spain Debt Agency (Tesoro) sold total €B vs. €3.5-4.5B indicated range in 6-month and 12-month bills.

- (ZA) South Africa sold total ZAR3.9B vs. ZAR3.9B indicated in 2040, 2044 and 2053 bonds.

- (UK) DMO sold £1.5B in 0.75% Nov 2033 Inflation-linked Gilts; Real Yield: 0.724% v 0.831% prior; bid-to-cover: 2.68x v 2.94x prior.

Looking ahead

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

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

- 05:30 (DE) Germany to sell €4.5B in 3.10% Dec 2025 Schatz.

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

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month bills.

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

- 06:30 (EU) ESM to sell €1.1B in 3-month Bills.

- 06:30 (TR) Turkey Nov Real Effective Exchange Rate (REER): No est v 55.90 prior.

- 07:00 (BR) Brazil Q3 GDP Q/Q: -0.3%e v +0.9% prior; Y/Y: 1.8%e v 3.4% prior; GDP 4 Quarters Accumulated: 2.8%e v 3.2% prior.

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:00 (BR) Brazil Nov Services PMI: No est v 51.0 prior; Composite PMI: No est v 50.3 prior.

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

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

- 09:30 (CA) Canada Nov Services PMI: No est v 46.6 prior; Composite PMI: No est v 46.7 prior.

- 09:45 (US) Nov Final S&P Services PMI: 50.8e v 50.8 prelim; Composite PMI: 50.7e v 50.7 prelim.

- 10:00 (US) Oct JOLTS Job Openings: 9.300Me v 9.553M prior.

- 10:00 (US) Nov ISM Services Index: 52.3e v 51.8 prior; Prices Paid: No est v 58.6 prior.

- (MX) Mexico CitiBanamex Survey of Economists.

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

- 19:00 (AU) Australia to sell A$700M indicated in 3.75% Apr 2037 bonds.

- 19:30 (AU) Australia Q3 GDP Q/Q: 0.4%e v 0.4% prior; Y/Y: 1.8%e v 2.1% prior.

- 21:35 (CN) China to sell 3-year Upsized Bond.

- 21:35 (CN) China to sell 3-month bills.