In focus today
Today, in the euro area we receive data on consumer confidence for November. We have seen a strong upward trend the past year, which bodes well for consumption next year if it continues.
In Sweden, we have a speech by Riksbank vice governor Per Jansson at 14:45 about the economic situation. According to the Minutes, Jansson cited a slower-than-anticipated economic recovery as his reason for supporting a 50bp rate cut. He concluded that overall inflation risk is trending downward, although he balanced that by highlighting two upside risks: the krona and food prices, which in the worst case could delay rate cuts or even justify hikes.
In the US, we receive initial jobless claims and the Philly Fed Business index for November, which measures growth in the manufacturing sector, where consensus suggests 8.0.
Several central bank speeches from both ECB and Federal Reserve again today including Knot, Holzman and Lane, where the market will look for clues on monetary policy ahead of December announcements.
Overnight, the Japanese Statistics Bureau publishes inflation data for October. Tokyo data indicates, inflation declined further, but price momentum rhymed with 2% annual inflation. Consensus sees 2.2% with September inflation of 2.4%. This will be the last nationwide print ahead of the December BoJ meeting.
Economic and market news
What happened overnight
In the US, Yesterday’s auction of USD 16bn in the 20Y was very weak with a very high tail and low demand from direct bidders. However, the 20Y segment on the US Treasury curve usually attracts low demand as it is a new segment on the yield curve (was introduced in 2020) similar to what we see on the German curve, where the 15Y-20Y segment also attracts low demand and have to offer an extra premium to investors. Hence, it should not have significant impact on the long end of the Treasury curve.
What happened yesterday
In the euro area, negotiated wage growth increased to 5.4% y/y in Q3 from 3.5% in Q2, influenced by seasonal factors such as bonuses and recent increase in German special payments. Despite this volatility, average negotiated wages have now increased 4.6% y/y, up from 4.4% y/y in 2023, indicating persistently strong wage trends. This sustained wage growth is expected to continue influencing services inflation. However, the ECB’s focus has shifted from inflation concerns to growth, lessening the impact of the data on future policy rate decisions.
In the UK, October’s inflation figures surpassed expectations with headline CPI at 2.3% y/y (cons: 2.2%, prior: 1.7%), and core CPI at 3.3% y/y (cons: 3.1%, prior: 3.2%). The rise in the headline is primarily due to quarterly adjustments in household energy bills. Given this, we therefore caution reading too much into this print given the significant impact of energy costs.
Equities: Global equities were marginally lower yesterday, and it was definitely not the Trump trades outperforming. Health care is finally showing some defensive characteristics after having faced several challenging weeks following the elections. Materials also outperformed on a negative day, a sector which has also been challenged over the last couple of weeks but that’s more related to disappointing Chinese stimulus. European stocks once again started the day in the green before ending in the red. This illustrates quite well the investor scepticism, fear, and uncertainty related to geopolitics, German politics, struggling manufacturing sectors, and challenging structural outlooks related to Europe. What seems to be missing is the belief in potential upside surprises in Europe, despite economic surprises currently being positive for the region. In the US yesterday, Dow +0.3%, S&P 500 +0.00%, Nasdaq -0.1%, and Russell 2000 +0.03%. Asian markets are mixed this morning, with South Korea standing out once again, this morning on the positive side. European futures are higher – let’s see if the strength can continue throughout the cash session. US futures are slightly lower but without a massive impact following the Nvidia earnings in the after-hours yesterday.
FI: Geopolitics continued to add downward pressure on global rates through yesterday’s session. The EUR swap curve rose modestly across tenors during the first part of the session, but the move faded quickly as news of another Ukrainian attack on Russian soil reached the wire. The EUR swap curve ended the day marginally higher across tenors, while the Bund ASW-spread move slightly higher to 2-week high of 2.5bp.
FX: USD and CAD gained the most yesterday and NOK and SEK lost out on another relatively quiet day for the FX market. EUR/USD traded in the 1.05-1.06 range, EUR/SEK rose above 11.60 and EUR/NOK climbed towards 11.70.
