PMIs underscore persistent headwinds in Chinese manufacturing

In focus today

• In the US, the November ISM Manufacturing index is due for release today. Leading manufacturing indicators have sent mixed signals so far, with the flash PMI declining slightly and regional Fed indices improving modestly. Even though the most important US labour market and inflation data points have been postponed beyond the Fed's next meeting on 10 December, markets will keep a close eye on this week's releases in light of the still uncertain rate decision. Market pricing is clearly leaning towards another rate cut next week, but the decision is not yet set in stone with around 80% probability priced in.
• In Sweden, the November manufacturing PMIs are released today. Sweden has managed to deviate on the upside compared to European outcomes for the last two years. The October levels of 55.1 were driven mainly by strong domestic activity, whereas foreign orders showed somewhat benign levels. Sweden is therefore dependent on improved foreign activity to see a further rise in the manufacturing PMIs, whereas a cool-down of domestic activity could result in a risk for a drop in the aggregated levels.
• In Norway, focus also turns to the release of November PMIs. Both the PMI and the actual production figures have pointed to a slowdown in manufacturing. We believe the underlying trend is pointing downward, driven by gradually lower activity in the oil-related industry.
• The rest of the week, focus turns to the US ADP employment for November as well as the September PCE inflation. In the euro area, we receive the aggregate inflation print, and the ECB's preferred measure of wage growth for the third quarter. Especially the wage growth will be interesting for the ECB as it is what keeps inflation from falling below target currently.

Economic and market news

What happened over the weekend

In China, official manufacturing PMI rose slightly to 49.2 in November (cons: 49.2, prev: 49.0), but remained in contraction for the eighth consecutive month, while the private RatingDog manufacturing PMI surprised to the downside, falling back below 50 to 49.9 (cons: 50.5, prev: 50.6). Despite a trade truce with the US from October boosting export orders to an eight-month high, sluggish domestic demand weighed on overall activity. Policymakers are expected to delay major stimulus measures until 2026, with markets now focused on policy signals from December's Central Economic Work Conference.

In the US, Trump noted over the weekend that he has decided on this nominee for Federal Reserve Chair, who he expects to deliver rate cuts. His chief economic advisor Kevin Hasset is seen as the most likely choice.

In Japan, BoJ Governor Ueda signalled the possibility of a rate hike at the December policy meeting, citing improving economic conditions and sustained wage growth as key factors. Ueda emphasised that a rate hike would represent "easing off the accelerator" rather than "applying the brakes," but left room to delay the decision. We expect the BoJ to deliver its next hike in December. His remarks pushed the yen higher and Japanese government bond yields to a 17-year high, while the Nikkei fell more than 1.5%, reflecting concerns over tighter monetary policy and fiscal uncertainties under Prime Minister Takaichi.

In the euro area, inflation data for November was mixed on Friday. German HICP inflation rose to 2.6% y/y (cons: 2.4%), but we expect euro area inflation released on Tuesday to stay flat at 2.1% y/y (cons: 2.1%) due to lower-than-expected prints in France and Italy. Despite the mixed signals, inflation remains above the ECB's Q4 forecast, and with growth holding up and a strong labour market, we see the ECB maintaining its policy stance in December.

In Norway, retail sales increased by 0.1% m/m in October, falling short of our expectation of 0.5% m/m. The three-month moving average rose by 0.5%, but the data remains somewhat disappointing, with no clear signs of any positive impact from the rate cuts earlier this year in June and September. Meanwhile, the labour market showed slight signs of weakening, as the seasonally adjusted unemployment rate remained unchanged at 2.2% in November, but the number of unemployed persons increased by 350.

In Sweden, GDP grew by 1.1% q/q and 2.6% y/y in Q3, exceeding our expectations of 0.9% q/q and 1.7% y/y. The strong performance was primarily driven by household consumption, with additional support from growth in exports and gross fixed capital formation.

On geopolitics, President Trump declared the airspace above and around Venezuela "closed in its entirety," raising geopolitical tensions in the region. The announcement, which follows months of US military activity near Venezuela, was condemned by Maduro's government and criticised by international partners such as Iran. While the move reflects heightened pressure on Maduro, its lack of clarity has created uncertainty, with markets likely to monitor developments closely.

Furthermore, US Secretary of State Marco Rubio expressed optimism for progress during weekend talks with Ukrainian officials in Florida, emphasising the importance of securing Ukraine's sovereignty and future prosperity. Ukraine's delegation was led by new negotiator Rustem Umerov, who replaced Andriy Yermak following his resignation amid a corruption scandal. Umerov described the discussions as productive and praised the US for its continued support. The talks follow previous negotiations in Geneva, with Special Envoy Steve Witkoff now set to travel to Moscow for further discussions with Russian counterparts later this week.

Equities: Equities extended their gains on Friday, giving us five consecutive up-days and leaving the week more than 3% higher. Once again, the pattern is clear: in an environment with broadly supportive macro fundamentals, it rarely pays to chase weakness, and equity drawdowns tend to stall around the 5% mark. As expected, cyclicals outperformed defensives last week by around 2%, although on a 1- and 3-month horizon defensives are still ahead thanks to the exceptionally strong run in healthcare. Investor sentiment also turned quickly last week, with the VIX dropping from 20 to 16, pushing us into the "complacency zone." Given the macro backdrop, low implied vol is not unusual. In the US on Friday Dow +0.6%, S&P 500 +0.5%, Nasdaq +0.7%, Russell 2000 +0.6%. Asian trading is mixed this morning, with the Nikkei down just over 2%, while Chinese equities trade higher. European and US futures point lower.

FI and FX: Yields climbed across regions at the end of last week in a bearish steepening across curves. European yields were relatively unscathed by regional inflation data for November out Friday with the final euro area inflation print set to remain flat on Tuesday, in line with expectations. EUR/USD ended the week breaching the 1.16 level with a string of data releases in focus from both the euro area and the US the coming week. Markets will be especially attentive to any news of Trump's nominee for Fed Chair, which he has stated that he has decided on, and that he expects to deliver rate cuts. 10Y Gilts yields ended the week roughly 10bp lower and EUR/GBP slightly lower as the Autumn Budget failed to spur a sell-off in UK markets. OPEC confirmed its intention to keep oil output steady in Q1 next year, leaving oil to trade around the 60 USD/bbl mark.