Markets

Yesterday’s session was a short one with the US absent for Thanksgiving. European stock markets closed with gains between 0.4-0.8%. European/German bonds advanced in a catch-up move with a late-session UST rally the day before. ECB’s Schnabel cut the run short though. The influential German board member said European fiscal policies and incoming data so far suggest that the room for slowing down the tightening pace remains limited. Dutch ECB governor Knot earlier also warned that large-scale fiscal policy can lead to inflation. German yields at the short end pared losses to 2.8 bps. Longer tenors eased 8-8.3 bps still with the 10y yield losing June interim high support at 1.927%. EUR/USD held a tight sideways pattern. The pair finished slightly higher at 1.041. Sterling had a good run. Bank of England MPC member Ramsden sided with chief economist Pill, saying additional rate hikes are necessary to keep inflation expectations anchored. He downplayed central bank scenario’s projecting inflation below target in two years even with the policy rate held stable at the current 3%. Gilts underperformed with gains up to 7.9 bps in the 2y. The very long end (30y) rose to the same extend after the BoE formally announced it will wind down its financial stability gilt purchases made between Sep 28 and Oct 14. EUR/GBP lost the upward sloping trendline (Aug-Oct) and came close to an (inevitable) test of 0.8567 neckline support. Cable (GBP/USD) extended gains to 1.211. The Japanese yen closed at the strongest level since early September (USD/JPY 138.54) while the Swedish krone (EUR/SEK 10.83) profited from the Riksbank’s 75 bps rate hike to 2.5% and higher expected terminal rate.

FX markets in Asian-Pacific dealings trade quietly this morning. Stocks trade mixed with the Antipodeans outperforming. In China/Hong Kong markets are weighing record Covid cases (and expanding community lockdowns) vs upcoming monetary stimulus. The State Council issued a statement earlier this week that tools “such as a RRR cut” will be used “in a timely and appropriate manner". This is usually followed by an actual cut by the PBOC some days after. US cash bond markets reopen with yields declining between 1.7 bps (30y) to 4.9 bps (2y).

US financial markets reopen today but only for a short session, reducing liquidity for a second day straight. Unlike yesterday, there are no smaller central bank meetings nor high-profile central bank speakers scheduled that could spice up the session. Forget about today’s lackluster trading session and let’s focus on next week instead. ECB President Lagarde appears before the Committee on Economic and Monetary Affairs for a hearing on Monday while Fed chair Powell speaks on November 30. European CPI’s are due that same day, serving as key input for the ECB December meeting and the US releases the monthly labour market report next Friday.

News headlines

Japanese inflation, as measured by Tokyo CPI (one month ahead of national CPI), accelerated more than expected in November from 3.5% Y/Y to 3.8% Y/Y for the headline reading and from 3.4% Y/Y to 3.6% Y/Y for the ex-fresh food gauge (eyed by the BoJ). Stripping out energy as well came in at 2.5% Y/Y. Tokyo inflation this way hit the fastest pace since April 1982. Processed food prices (6.7% Y/Y) and the weaker yen added to price pressure. The numbers add pressure to BoJ governor Kuroda’s view that cost-push inflation is only temporary and make it tougher to defend the Japanese central bank’s ultra-easy monetary policy. Japanese government bond yield rise by 3-4 bps this morning at the 5yr+ part of the curve. The yen fails to build on his recent momentum after bouncing off the mid-November low yesterday (137.68).

Spanish parliament approved next year’s budget, with a record spending cap op €198.2bn, in a win for the minority coalition of PM Sanchez. Next year’s budget will increase social spending by 11% to a record €266.7bn, bolster pensions by around 8.5%, and increase civil servant wages by 3.5%. Government spending should deliver 2.1% growth next year with the budget deficit shrinking from 5% of GDP this year to 3.9% next. Spain’s lower house also approved a plan to impose windfall taxed on banks and energy companies. Both bills will now be sent to Spanish Senate for final approval.

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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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