Oil and defense stocks decline on hopes of Ukraine conflict resolution

EU mid-market update: US jobs report day; Oil and defense stocks decline on hopes of Ukraine conflict resolution; WSJ reports on CoreWeave construction delays during summer, as Oracle CDS hit 16-year high.

Notes/observations

- EU defense stocks and crude oil turn lower over genuine optimism for a Ukraine peace plan. (Rheinmetall -4%, SAAB -6%, Leonardo -5%; Brent dropped below $60/bbl.).

- Following high-level negotiations in Berlin involving Ukrainian Pres Zelensky, US envoys (Witkoff, Kushner), and European leaders, Ukraine offered to drop NATO membership aspirations in exchange for strong ("platinum") security guarantees (NATO-like Article 5 protections from the US and allies, plus a potential European-led peacekeeping force). Trump stated a deal is "closer than ever," with reports of alignment on ~90% of a revised ~20-point framework, including military rebuilding support for Ukraine. This morning Russia Dep Foreign Min said "Certain a Ukraine war resolution is near".

- Flash PMIs were eclectic, with strong manufacturing beat for France and UK, but a big miss for Germany. Readings were above and below all analysts ranges, respectively. Services were more in line.

- CoreWeave’s reported 60-day delay at its Denton, Texas site is framed as summer heavy rain issue, but some tech analysts argue it is really a physics-driven redesign scramble to accommodate Nvidia Blackwell-era direct-to-chip liquid cooling - a sign the AI cloud is hitting a “thermal cliff” where mechanical, electrical, and plumbing limits, not wafers, set deployment speed. The bigger risk is that this becomes structural as rack densities escalate from ~120 kW today toward a hypothesized ~600 kW in the Rubin era, turning retrofits, CDU availability, and even power-distribution shifts (e.g., 480 VAC to 800 VDC) into chronic bottlenecks that stretch commissioning timelines and bifurcate “AI-ready” real estate further.

- Generally, risk appetite is struggling, with European indices flat, US futures red and Bitcoin taking another step lower to ~$86K. Liquidity in general will begin to tail off as we enter second half of Dec.

- Oracle’s 5-year CDS ripping up to ~151 bps (16-year high) is the credit market’s way of pricing “AI buildout risk” - not bankruptcy tomorrow, but a materially higher probability of downgrade and forced funding at wider spreads if capex keeps outrunning cash generation. The move is being pinned on the same cluster of fears: Oracle’s sharply higher AI infrastructure spend, the scale of newly disclosed long-dated data-center lease commitments (~$248B), and the market’s expectation that the gap gets bridged with more debt, all while investor confidence is whipsawed by headlines around OpenAI-linked build timelines (which Oracle has publicly disputed).

- Fed chair race continues to be a fluid situation, with momentum in last few days shifting to Kevin Warsh (a former Fed governor) from prior favorite Kevin Hassett (National Economic Council Dir). Odds have risen so much for Warsh that odds are close to 50-50 currently.

- Asia closed lower with KOSPI under-performing -2.2%. EU indices -0.5% to +0.3. US futures -0.3% to -0.6%. Gold -0.6%, DXY -0.1%; Commodity: Brent -1.8%, WTI -1.8%; Crypto: BTC -3.9%, ETH -7.4%.

Asia

- Australia Dec Preliminary PMI Manufacturing: 52.2t v 51.6 prior (2nd month of expansion).

- Australia Dec Westpac Consumer Confidence: 94.5 v 103.8 prior.

- Japan Dec Preliminary PMI Manufacturing: 49.7 v 48.7 prior (6th month of contraction).

- New Zealand govt cuts FY25/26 bond issuance forecast to NZ$35.0B from NZ$38.0B prior; forecasts FY26 budget deficit of NZ$13.9B.

Global conflict/tensions

- Pres. Trump stated that the war in Ukraine was closer than ever following Monday talks.

- US officials said Nato-style guarantees were on offer on Monday in Germany, at peace talks that could end the war if Ukraine agrees to cede territory to Russia.

Americas

- Fed's Williams (voter): Expected the jobs report to confirm signs of gradual cooling; It's too early to remark on Jan Fed decision. Expected inflation to drop to just under 2.5% next year, reaching the Fed’s 2% target in 2027.

- Fed's Miran (dovish dissenter): Fed policy is too tight. Saw tariff driven inflation, might get some yet, but standard practice is to look through it.

Trade

- US said to suspend technology deal with the UK; relates to the £31.0B 'tech prosperity deal'; cites trade disagreements.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.14% at 581.74, FTSE -0.32% at 9,719.70, DAX -0.49% at 24,148.94, CAC-40 +0.02% at 8,126.12, IBEX-35 -0.25% at 16,999.93, FTSE MIB +0.14% at 44,180.50, SMI +0.36% at 13,079.20, S&P 500 Futures -0.45%].

Market Focal Points/Key Themes: European indices opened generally lower and remained under pressure through the early part of the session; markets showing risk-off attitude ahead of central bank meetings later in the week; among sectors managing gains are consumer discretionary and financials; sectors leading the way lower include energy and telecom; oil & gas subsector under pressure following positive commentary on Russia-Ukraine peace deal; focus on US NFP coming out later in the day; Pfizer to hold investor day, and Lennar to report earnings.

Equities

- Consumer discretionary: Hollywood Bowl [BOWL.UK] +2.5% (earnings).

- Financials: IG Group [IGG.UK] +5.5% (trading update).

- Industrials: Rheinmetall [RHM.DE] -4.5% (optimism on Ukraine war resolution).

- Technology: ASML [ASML.NL] -1.5% (US-Asia tech sell-off amid AI financing concerns).

- Telecom: Telefonica [TEF.ES] -4.0% (may replace CFO).

Speakers

- Norway Statistics Office (SSB) updates economic outlook which maintained 2025 Underlying CPI at 3.1% while cutting 2025 Mainland GDP from 1.9 to 1.7%. SSB saw Norges cutting the Deposit Rate once in 2027 and again in 2027.

- EU set to propose softening emissions rules for new cars, scrapping an effective 2035 ban on combustion engines.

- Russia Dep Foreign Min Ryabkov stated that was certain the Ukrainewar resolution was near [**Note: 1st Russia officials' reaction to yesterday's US-Ukraine talks].

- Japan Parliament said to have pass the extra budget to fund the economic package (**Reminder: on Nov 28th Japan Cabinet approved the ¥18.3T ($117B) extra budget for package).

- Japan FY2026 draft initial budget to be over ¥120T.
US reportedly preparing to seize more tankers off Venezuela.

Currencies/fixed income

- USD was steady to slightly weaker as mix PMI readings out of Europe subdued price action.

- EUR/USD at 1.1750 area and staying within a narrow range.

- GBP/USD staying around the 1.34 level ahead of Thurs BOE rate decision. Job data in the session showed further weakening. Hourly wage data came in hotter than consensus but still registering 4-year lows. Markets still expect a BOE rate cut this week.

- USD/JPY holding below the 155 level. Yen price action caught between monetary and fiscal policies. Markets seeing the possibility of a Dec rate hike from the BOJ but reports circulated that the Japan FY2026 draft initial budget to be over ¥120T.

- 10-year German Bund yield at 2.84%, France 10-year Oat at 3.55% and 10-year Gilt yield at 4.51% 10-year Treasury yield: 4.16%.

Economic data

- (UK) Nov Jobless Claims Change: +20.1K v -3.9K prior; Claimant Count Rate: 4.4% v 4.3% prior; Payrolled Employees Monthly Change: -38K v -20Ke.

- (UK) Oct Average Weekly Earnings 3M/Y: 4.7% v 4.4%e; Weekly Earnings (ex-bonus) 3M/Y: 4.6% v 4.5%e.

- (UK) Oct ILO Unemployment Rate: 5.1% v 5.1%e; Employment Change 3M/3M: -16K v -75Ke.

- (ES) Spain Q3 Labour Costs Y/Y: 3.0% v 3.0% prior.

- (CZ) Czech Nov PPI Industrial M/M: +0.3%e v -0.1% prior; Y/Y: -1.3% v -1.7%e.

- (FR) France Dec Preliminary Manufacturing PMI: 50.6 v 48.1e (1st expansion in 5 months and higher since Aug 2022); Services PMI: 50.2 v 51.2e.

- (DE) Germany Dec Preliminary Manufacturing PMI: 47.7 v 48.7e (42nd month of contraction); Services PMI: 52.6 v 53.0e.

- (HK) Hong Kong Nov Unemployment Rate: 3.8% v 3.8%e.

- (EU) Euro Zone Dec Preliminary Manufacturing PMI: 49.2 v 49.9e (2nd month of contraction); Services PMI: v 53.3e.

- (IT) Italy Nov Final CPI M/M: -0.2% v -0.2% prelim; Y/Y: 1.1% v 1.2% prelim.

- (IT) Italy Nov Final; CPI EU Harmonized M/M: -0.2% v -0.2% prelim; Y/Y: 1.1% v 1.1% prelim; CPI Index (ex-tobacco): 121.3 v 121.4% prior.

- (UK) Dec Preliminary Manufacturing PMI: 51.2 v 50.4e (2nd month of expansion; Services PMI: 52.1 v 51.7e.

- (DE) Germany Dec ZEW Current Situation Survey: -81.0 v -80.0e; Expectations Survey: 45.8v 38.4e.

- (EU) Euro Zone Dec ZEW Expectations Survey: 33.7 v 25.0 prior.

- (IT) Italy Oct Total Trade Balance: €4.2B v €3.0B prior; EU Trade Balance: -Є1.3B v -€0.1B prior.

- (EU) Euro Zone Oct Trade Balance (seasonally adj): €14.0B v €18.5Be; Trade Balance NSA (unadj): €18.4B v €19.4B prior.

Fixed income issuance

- (UK) DMO sold £4.25B in 4.125% Mar 2031 Gilts; Avg Yield: 4.093% v 4.088% prior; bid-to-cover: 3.23x v 3.01x prior; Tail: 0.2bps v 0.6bps.

Looking ahead

- (AR) Argentina Nov Budget Balance (ARS): No est v 823.9B prior.

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

- 05:15 (CH) Switzerland to sell 3-month Bills; Avg Yield: % v -0.051% prior; bid-to-cover: x v 4.02x prior (Dec 9th 2025).

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills; Avg Yield: % v 6.21% prior; bid-to-cover: x v 1.77x prior (Dec 9th 2025).

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO) (prior €7.984 with 38 bids recd).

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR).

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

- 06:00 (IL) Israel Q3 Preliminary GDP (2nd reading) Y/Y: No est v 12.4% advance.

- 06:00 (TR) Turkey to sell bonds (2 tranches).

- 06:30 (EU) ESM to sell €1.1B in 6-month Bills; Avg Yield: % v 1.998% prior; Bid-to-cover: x v 2.72x prior (Nov 18th 2025).

- 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 (PL) Poland Nov CPI Core M/M: -0.1%e v +0.1% prior; Y/Y: 2.7%e v 3.0% prior.

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

- 08:15 (US) ADP Preliminary Employment Change for 4-weeks ending Nov 29th.

Note: BLS to release Nov & Oct jobs data; No Oct unemployment Rate.

- 08:30 (US) Nov Change in Non-Farm Payrolls: +50Ke; Private Payrolls: +40Ke; Manufacturing Payrolls: -5Ke.

- 08:30 Nov Unemployment Rate: 4.5%e; Underemployment Rate: ; Labor Force Participation: 62.4%e.

- 08:30 (US) Average Hourly Earnings M/M: 0.3%e; Y/Y: 3.6%e; Average Weekly Earnings: 34.2e.

- 08:30 (US) Nov Advance Retail Sales M/M: 0.1%e v 0.2% prior; Retail Sales (ex-auto) M/M: 0.2%e v 0.3% 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 Business Activity: No est v -21.7 prior.

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

- 09:45 (US) Dec Preliminary S&P Manufacturing PMI: 52.0e v 52.2 prior; Services PMI: 54.0e v 54.1 prior; Composite PMI: No est v 54.2 prior.

- 10:00 (US) Oct Business Inventories: 0.1%e v 0.0% prior.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 13:00 (CA) Bank of Canada (BOC) Gov Macklem.

- 14:00 (AR) Argentina Q3 GDP Q/Q: +0.5%e v -0.1% prior; Y/Y: 3.5%e v 6.3% prior.

- 16:00 (CL) Chile Central Bank (BccH) Interest Rate Decision: Expected to cut Overnight Target Rate by 25bps to 4.50%.

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

- 16:45 (NZ) New Zealand Q3 Current Account Balance (NZD): -7.7Be v -1.0B prior; Current Account to GDP Ratio YTD: -3.4%e v -3.7% prior.

- 18:30 (AU) Australia Nov Westpac Leading Index M/M: No est v +0.1% prior.

- 18:50 (JP) Japan Nov Trade Balance: +¥72.6Be v -¥226.1Bprior (revised from -¥231.8B); Adjusted Trade Balance: -¥206.9Be v -¥4.2B prior; Exports Y/Y: 5.0%e v 3.6% prior; Imports Y/Y: 3.0%e v +0.7% prior.

- 18:50 (JP) Japan Oct Core Machine Orders M/M: -1.8%e v +4.2% prior; Y/Y: 3.6%e v 11.6% prior.

- 19:30 (SG) Singapore Nov Non-Oil Domestic Exports Y/Y: 7.1%e v 22.2% prior; Electronic Exports Y/Y: No est v 33.2% prior.

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