Market movers today
Today we get the HICP inflation numbers for the euro area. After yesterday's lower-than-expected Spanish and German prints, consensus expects the euro area figure at 2.5% y/y.
At 14:30 FED's preferred inflation gauge is released. Consensus expects the PCE core to slow down to 0.2% m/m SA, mirroring a similar decline in the CPI measure released earlier.
OPEC+ convenes on Thursday after their last scheduled meeting was postponed.
The 60 second overview
Heavy data releases from the euro area showed declining inflation, below consensus estimates, and mixed consumer confidence. European rates markets reacted strongly to the inflation release sending yields lower from the front end as additional rate cuts were priced. 10y German yields declined to multi-month lows of 2.42%. The German and Spanish inflation print came in below expectations at -0.4% m/m in November (cons.: -0.1%, prior: 0.0%), and -0.4% m/m (cons.: 0.1%, prior: 0.3%), respectively. This combined with slowing inflation in Belgium and Ireland means that today's euro area flash inflation print is pointing to a 2.5% release. The EU Commission confidence indicator was mixed across sectors with improved confidence in the service sector and lower confidence in the industry. Yet, over the past months, confidence in the industry has stabilized from the large downward trend during the previous years in a signal of activity bottoming out like we have seen in the PMIs.
In the US, we had positive economic data, including an upwardly revised Q3 GDP growth of 5.2% annualised rate, which has strengthened the broad USD, yet the Beige Book has signalled a pre-November 18 economic slowdown.
Overnight, the Chinese PMI pointing to a slowdown in the manufacturing sector with a 49.4 print, while services pointed to a largely stagnating sector of 50.2, both indicators below consensus.
Yesterday, we published a piece on the EU fiscal rules and what to expect from the negotiations on a new set of rules. Currently there is no agreement on the new fiscal rules and the clock is ticking, as the old rules will otherwise come into force again from 1 January 2024. We expect that the EU Member States will most likely not sign a final legal set of rules before year-end, however, we expect that they will agree on a "landing zone" for the new rules at the ECOFIN meeting on 8 December. We expect that the "landing zone" will reinstate the old 3% deficit and 60% debt targets, but with greater flexibility to adapt country specific fiscal adjustment paths. The fiscal stance in the euro area becomes tighter in the coming years as sustainable public finances get renewed focus. See more in Euro Area Research: New fiscal rules in the EU - aligning theory and practice?, 29 November 2023.
Equities: Equities were mixed on Wednesday, with US a tad lower and Europe half a percent higher. The European outperformance partly underscored by benign inflation numbers, but also catchup from the prior session. Interesting that the fall in yields have not chalked up a new wave of equity risk taking. AAII bull/bear spread is back at July highs, so positioning is probably a piece to the puzzle. Cyclicals beat defensives though, with an odd mix of both banks and real estate among best sectors. US futures and Asian markets are a little higher this morning.
FI: The inflation releases from Spain and Germany sent yields lower through yesterday's trading session with 10y Bunds ending the day 6bp at multi-month lows of 2.42%. Intra-euro area spreads saw little change. Curves steepened from the front end as the markets added to rate cut expectations with adding another 10bp yesterday to the 2024 pricing. Compared to Monday' close, markets have added 22bp in total with a total of 111bp of cuts priced in through 2024.
FX: EUR/USD sustained consolidation slightly below the 1.10 mark amid a prevailing strengthening of the USD. USD/JPY has exhibited a downward trajectory and currently hovers just above 147. Meanwhile, EUR/GBP experienced a further decline, settling within the mid-0.86 range. EUR/SEK dipped below 11.40, and EUR/NOK is positioned around 11.70.
Credit: Yesterday, credit markets were again positive with iTraxx Main 1.5bp tighter to 66.8bp while Xover tightened by 10.2bp to 367.1bp. In addition, the primary markets continue to be wide open with several financial and corporate issuers active with deals across the Nordic area and five Eurobond transactions. The current market sentiment is showing constructive credit conditions most types of credit transactions, however some seasonal slowdown should soon be expected to influence the current high activity.
Riksbank Governor Bunge speaks about monetary policy and the latest decision. Recall the silent period has not yet passed, hence, she cannot say speak for herself, just on behalf of the Board's common decision.
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