US ISM Manufacturing weakens, reinforcing Fed rate cut expectations

In focus today

In the euro area, focus turns to the flash inflation data for November. On Friday we received data from the biggest four countries, which came in lower than expected pointing to unchanged headline inflation at 2.1% y/y and core at 2.4% y/y in November in line with our initial forecast but below consensus expectations.

In Denmark, Danmarks Nationalbank's press release on November FX reserve will be published today, revealing whether the central bank intervened in the FX market in November. The EUR/DKK is at a high level, but we do not expect the release to show intervention in November.

Economic and market news

What happened yesterday

In the US, the ISM manufacturing index fell to 48.2 in November (cons: 49.0) from 48.7 in October, signalling continued contraction in the sector. While realised output improved, forward-looking order-inventory balances weakened significantly, pointing to negative growth momentum. Domestic demand showed further signs of softening, while export orders recovered slightly but remain at historically low levels. With key US labour market and inflation data postponed beyond the Fed's next meeting on 10 December, the weaker-than-expected ISM manufacturing release reinforces expectations for a dovish stance from the Fed, and markets are now pricing in a 86% probability for a December cut. We are also expecting a 25bp cut in December.

In Sweden, the manufacturing PMI fell to 54.6 in November (prior: 55.0) but is still above its historical average of 54.3 for the fifth consecutive month. The decline was mainly driven by a decline in production but also delivery times, while new orders and employment increased. We are not worried about the decline in November. The PMI is holding up well, and this view is also supported by the NIER survey from last week.

In Norway, the manufacturing PMI rose from 48.2 to 53.0 in November, breaking the downward trend we have seen since July. The recovery was broad-based, with gains in production, new orders and employment. As we have previously noted, the PMI has been significantly weaker than actual production figures for some time, and the lift in November just helps close this gap somewhat.

On tariffs, the US announced a zero-tariff pharmaceutical deal with the UK. The agreement will see UK pay 25% more for new US medicines and revise its drug valuation framework at NICE. In return, UK-made medicines and medical technology will be exempt from US tariffs. Bristol Myers Squibb plans USD 500m in UK investments, while the British Chambers of Commerce praised the deal.

Bitcoin dropped 5.2% on Monday, which dragged its price down to USD 87,000, marking a 30% drop since its October high.

In geopolitics, efforts to end the Ukraine war are gaining momentum as US Special Envoy Witkoff and Jared Kushner head to Moscow for talks with Russian President Putin. European leaders, including President Zelenskiy, have pushed back against initial US peace proposals seen as favouring Russia, advocating for a more balanced framework during recent discussions in Geneva and Paris.

Equities: The week opened with lower equity markets, but the tone was anything but classic risk-off. Cyclicals outperformed defensives, and low-vol stocks lagged the broader market. Sector-wise, Utilities were among the weakest performers, while Consumer Discretionary posted gains. The more telling price action unfolded in rates, where yields moved higher across the curve and across regions. It started with repricing at the front end in Japan yesterday morning and ended with a notable long-end increase in the US last night.

The equity moves should thus also be viewed through the lens of the global rates repricing and a market that is now entering a "wait-and-see" mode ahead of a heavy catch-up in delayed US macro data over the coming days. Asian markets are mostly higher this morning, led by strong gains in South Korea. Equity futures in Europe and the US trade broadly unchanged relative to yesterday's close.

FI and FX: Fixed income markets were off to a tough start to the week with a bearish steepening of the curve across regions. In the US, 10Y Treasuries rose close to 10bp while the 10Y swap rate climbed roughly 7bp during the day. JPY continued its performance during yesterday's session following BoJ Governor Ueda signalling a possibility of a rate hike at the December policy meeting, citing improving economic conditions and sustained wage growth as key factors. EUR/USD rose throughout yesterday's session, trading above the 1.16 mark aided by weak ISM data, cementing a rate cut from the Fed in December. The European natural gas price has dropped to the lowest level since early 2024 and the spread to US natural gas prices has narrowed to the tightest level since 2021.