Euro area PMIs set stage for ECB

In focus today

Today, in the euro area we receive November PMIs, an important factor for the ECB decision in December. The growth momentum has recently decreased, particularly driven by a slowdown in Germany. We expect manufacturing sector to remain well in contractionary territory, with the PMI expected to rise marginally to 46.4 in November (prior: 46.0), aligning closely with hard data due to the PMI index's construction. Meanwhile, the service PMI is likely to remain above 50, indicating growth, but we expect a slight decrease to 51.2 (prior: 51.6), influenced by a modest contraction in expansion and seasonal effects.

We also receive country-specific November PMIs for France, Germany, the US, and the UK.

We have plenty of ECB speeches today including Lagarde and Schnabel.

Economic and market news

What happened overnight

In Japan, October core CPI was reported at 2.3% (cons: 2.2%, prior: 2.4%), holding above the BOJ's 2% target. Additionally, Japanese manufacturing PMI decreased to 49.0 in November (prior: 49.2), indicating a contraction for the fifth month in a row. The figures will be among factors the BOJ will discuss at its next policy meeting in December

What happened yesterday

In the euro area, consumer confidence declined to -13.7 in November (cons: -12.4, prior: -12.5). The decline comes after a long upward trend during the past two years. Taken at face value the decline increases downside risks to the growth outlook. However, the series does fluctuate a bit from month to month and we have seen similar declines in single months in past two years that are then reverted in the following month. As private consumption is expected to be the main growth driver in the coming year it is important to follow consumer confidence going forward to see whether this month's decline was just one blip or a more serious change to the previous upward trend. 

In the US, jobless claims reached a six-month low at 213k (cons: 220k), indicating a relatively resilient labour market. However, we got a slightly weaker Philly Fed index registering at -5.5 for November (cons: 8.0, prior: 10.3). This figure remains within typical range observed over the past few years, albeit somewhat below average pre-covid levels. Neither of these data releases is expected to have a significant impact on the markets.

Yesterday, one of the Federal Reserve officials Golsbee said that he could see policy rates moving "a fair bit lower", but that the Federal Reserve would still need to determine the level for the neutral rate, but it was a "long way from where we are right now". This morning, we have seen US Treasury yields decline modestly in Asian trading.

In Norway, mainland GDP grew by 0.5% q/q (cons: 0.3%, prior: 0.1%). This robust growth in Q3 was largely driven by the petroleum related-, chemical- and pharmaceutical industries, which performed much better than anticipated. From the expenditure perspective, it is evident that oil investments and public sector spending were the primary catalysts for growth, with public investments and consumption alone contributing a full percentage point to Q3 growth.

Equities: Global equities were higher yesterday, with Europe registering a slight outperformance in a global context after a roller-coaster day. The situation in Europe is particularly intriguing at present. While most investors would agree that European equities are considerably cheaper compared to those in the US, just as many would probably concur that the European outlook is much cloudier, with uncertainty leading to a pattern of one step forward and two steps back. A potential game changer for Europe, both in relative and absolute terms, could be a pickup in manufacturing activity. Therefore, today's flash PMI figures are, in our opinion, the most important data point of the month for Europe.

It is worth noting that yesterday saw relatively broad-based gains, with the utilities sector outperforming along with small caps on the style side. Consequently, we are increasingly observing markets returning to being macro-driven, with the influence of Trump's trade policies gradually diminishing.

In the US yesterday, the Dow closed up by 1.1%, the S&P 500 by 0.7%, Nasdaq by 0.1%, and Russell 2000 by 1.9%.

This morning, we have Asia excluding China trading higher, with European futures also on the rise, while US futures were slightly lower.

FI: There was a modest decline in European government bond yields yesterday, while US Treasury yields rose modestly. This morning, we have seen a modest decline in US Treasury interest rates in Asian trading. One of the Fed members Golsbee stated that he could see rates "a fair bit lower" over the next year and that the neutral rate was a lower than the current level.

FX: The JPY and the USD gained yesterday and in particular vis-à-vis the EUR and the GBP. Notable mentions from yesterday, was the drop in EUR/USD below 1.05 and the rally in NOK/SEK back to parity.