Nervous traders show hand with sharp risk off move as Russia entertains idea of response

EU Mid-Market Update: Nervous traders show hand with sharp risk off move as Russia entertains idea of response; Putin formally ratifies amended nuclear doctrine.

Notes/observations

- Safe haven assets spiked as Russian Kremlin said Ukraine using ATACMS missiles may cause “response” after Pres Putin formally approved changes to nuclear doctrine, which were pre-announced in late Sept; US futures fell, Japanese Yen and Swiss Franc gained, and European bond yields dropped sharply.

- Besides geopolitical tensions, market has two short term catalysts in focus; Nvidia results tomorrow (participants of its Taiwanese supply chain refute reports on GB200 server overheating), and still pending Pres-Elect Trumps pick for Treasury Sec (to replace current Treasury Sec Janet Yellen). Furthermore, Trump is expected to attend SpaceX’s rocket launch later today, including the ‘chopstick catch’, as ties with Musk seemingly grow closer. Tesla is approx. -2% in premarket after rising >5% yesterday on hopes for self-driving rules relaxing.

- Walmart to report in US premarket at 07:00 ET.

- Asia closed higher with ASX outperforming +0.9%. EU indices are lower by -0.4% to -2.0%. US futures are -0.4% to -0.6%. Gold +0.8%, DXY +0.2%; Commodity: Brent -0.4%, WTI -0.5%; Crypto: BTC -0.1%, ETH -0.1%.

Asia

- RBA Oct Minutes reiterated stance that did not see inflation sustainably at target until 2026; No "Immediate need" to change the OCR. Current policy settings as appropriate to try to pull down core inflation that is still “too high,”

- South Korea Q3 Household Credit (KRW): 1,914T v 1,895T prior (fastest growth q/q since end-2021).

- Japan Fin Min Kato reiterated it was desirable for FX to move stably and reflect on fundamentals; Reiterated would continue to take appropriate action against excessive forex moves, and watching them with very high sense of urgency.

- China State Planner Official stated that expected domestic economy to sustain recovery momentum in Nov and Dec. Govt had ample policy room and tools to support economic recovery in 2025.

Global Conflict/tensions

- US envoy Hochstein said to have arrived to Beirut, Lebabon for truce talks (**Reminder: On Nov 18th Senior Lebanon official stated that Lebanon and Hezbollah had agreed to the US ceasefire proposal for a ceasefire with "some comments" on the content. No immediate response from Israel on the report).

- Russian govt spokesperson noted that its amendments to its nuclear doctrine had been formulated but not yet formalized. Russia was ready to normalize ties with the US but 'would not tango alone'.

Europe

- BOE’s Greene noted Risk of cutting too early was greater than going slowly with rate cuts. services inflation elevated, but on a downward path; UK budget will increase inflation; Equilibrium rate may have gone up.

Americas

- US Sept Total Net TIC Flows: $398.4B v $75.9B prior; Net Long-term TIC Flows: $216.1B v $108.8B prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.93% at 498.14, FTSE -0.46% at 8,071.86, DAX -1.16% at 18,953.75, CAC-40 -1.32% at 7,182.02, IBEX-35 -1.40% at 11,511.03, FTSE MIB -1.96% at 33,098.00, SMI -0.89% at 11,528.59, S&P 500 Futures -0.45%].

Market Focal Points/Key Themes: European indices open generally higher, but quickly reversed to trade to the downside; geopolitical risk seen weighing on investor appetite; among sectors holding on to gains are real estate and materials; sectors pulling to the downside include consumer discretionary and industrials; Nestle is trading lower following CMD announcements and update to its profit target; Autoneum takes majority stake in Jiangsu Huanyu; earnings expected in the upcoming US session include Walmart, Lowe’s and Medtronic. Qualcomm to hold investor meeting.

Equities

- Consumer discretionary: Nestle [NESN.CH] -1.5% (CMD; trims profit target; Water unit spin-off), Mulberry Group [MUL.UK] -6.5% (earnings; internal review) - Consumer staples: Imperial Brands [IMB.UK] +1.5% (FY results).

- Energy: Thyssenkrupp Nucera [NCH2.DE] +9.0% (prelim FY results - post close).

- Financials: Caixabank [CABK.ES] -1.0% (mid-term targets).

- Industrials: Rheinmetall [RHM.DE] +2.5% (CMD targets; Ukraine hits Russia's border region with US-made ATACMS missiles for the first time), Thyssenkrupp [TKA.DE] +7.5% (FY results), Diploma [DPLM.UK] -4.0% (earnings), Siemens [SIE.DE] -1.0% (Tier1 firm cuts to Neutral from Buy).

Speakers

- ECB’s Panetta (Italy) stressed that a tightening bias was no longer needed; ECB should provide more forward guidance in future. Council must move to neutral stance on interest rates.

- Sweden Central Bank (Riksbank) Breman noted that good conditions for inflation to remain close to target; saw further Repo Rate cuts if outlook. Economic activity is not showing signs of strengthening.

- Poland Central Bank (NBP) Duda stated that could cut rates in H1 2025, discussions to start in March.

- Russia Pres Putin said to have approved an updated nuclear doctrine.

- Russia Central Bank (CBR) Gov Nabiullina commented that the key rate was currently effective in fighting inflation; Expected that growth of corporate lending will start slowing down in coming months.

Currencies/fixed income

- Safe haven flows picked up in the session after reports circulated that Russia Pres Putin had approved and signed an updated nuclear doctrine. JPY and CHF were the main beneficiaries while the greenback added against various EU pairs. Gold was higher and bond yields fell.

- USD/JPY manage to put aside Bank of Japan's cautious stance on rate hikes and saw the yen currency firm up. Pair tested 153.20 as safe-haven flows picked up.

- EUR/USD began the session probing the 1.06 area but fell below 1.0540.

- GBP/USD approached the lower end of 1.24 area.

Economic data

- (CH) Swiss Oct Trade Balance (CHF): 8.1B v 4.9B prior; Real Exports M/M: +11.2 v -2.3% prior; Real Imports M/M: 0.7% v 0.7% prior; Watch Exports Y/Y: -2.2% v -12.1% prior.

- (AT) Austria Oct Final CPI M/M: 0.4% v 0.3% prelim; Y/Y: 1.8% v 1.8% prelim.

- (EU) Euro Zone Sept Current Account Balance: €37.0B v €35.B prior.

- (IT) Italy Sept Current Account Balance: €1.1B v €0.9B prior.

- (GR) Greece Sept Current Account Balance: €1.2B v €0.7B prior.

- (PT) Portugal Sept Current Account Balance: -€0.3B v +€1.4B prior.

- (EU) Euro Zone Oct Final CPI Y/Y: 2.0% v 2.0% advance; Core CPI Y/Y: 2.7% v 2.7% advance; CPI M/M: 0.3% v 0.3% prelim.

- (CY) Cyprus Oct CPI Harmonized M/M: +0.2% v -0.4% prior; Y/Y: 1.6% v 1.6% prior.

Fixed income issuance

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

- (EU) European Union opened its book to sell 2031 ad 2043 NGEU bonds via syndicate.

- (ZA) South Africa sold total ZAR3.75B vs. ZAR3.75B indicated in 2033, 2038 and 2040 bonds.

- (UK) DMO sold £3.25B in 3.75% Jan 2038 Gilts; Avg Yield: 4.558% v 4.131% prior; bid-to-cover: 2.74x v 3.28x prior; Tail: 0.6bps v 0.1bps prior.

Looking ahead

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

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

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

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

- 06:00 (FI) Finland to sell combined €1.0B in 2029 and 2034 RFGB Bonds.

- 06:30 (EU) ESM to sell €1.1B in 6-month Bills.

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

- 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) Oct Housing Starts: 1.334Me v 1.354M prior; Building Permits: 1.435Me v 1.425M prior (revised from 1.428M); Housing Starts M/M: -1.5%e v -0.5% prior; Building Permits M/M: +0.7%e v -3.1% prior (revised from -2.9%).

- 08:30 (CA) Canada Oct CPI M/M: +0.3%e v -0.4% prior; Y/Y: 1.9%e v 1.6% prior; CPI Core-Median Y/Y: 2.4%e v 2.3% prior; CPI Core-Trim Y/Y: 2.4%e v 2.4% prior; Consumer Price Index: 161.5e v 161.1 prior.

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

- 16:00 (KR) South Korea Oct PPI Y/Y: No est v 1.0% prior.

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

- 18:30 (AU) Australia Oct Westpac Leading Index M/M: No est v 0.03% prior.

- 18:50 (JP) Japan Oct Trade Balance: -¥391.9Be v -¥294.1B prior (revised from -¥294.3B) Adjusted Trade Balance: -¥146.7Be v -¥187.2B prior; Exports Y/Y: +1.0%e v -1.7% prior; Imports Y/Y: -1.9%e v +1.8% prior (revised from 2.1%).

- 20:00 (CN) China PBOC Monthly Loan Prime Rate Setting (LPR). Expected to leave rate unchanged at 3.10% and 3.60% respectively.

- 20:30 (KR) Bank of Korea to sell KRW1.2T in 3-year Bonds.

- 21:35 (CN) China to sell 1-year and 5-year Bonds.

- 22:00 (KR) South Korea Q3 Short-Term External Debt: No est v $142.0B prior.

- 23:00 (JP) Japan Oct Tokyo Condominiums for Sale Y/Y: No est v -13.7% prior.