Markets
After the Thanksgiving Holiday (some) US traders rejoined. For once, they had to catch up with the price dynamics in Europe yesterday. They found bond markets under corrective pressure. A poor EMU PMI causing no further decline in yields was a technical signal to the (potential) the end of the bond rally since end October. Even more important, the German government being forced to again suspend the debt brake procedure highlighted the risk of persistent fiscal deficits that will have to be financed at time a central bankers are withdrawing support. This topic of ‘excess bond supply’ not only applies to Germany or Europe but for sure also to the US. US yields today jumped 4.5 bps (2-y) to 7.0 bps (10-y) going into the release of the US PMI’s. EMU yields initially tried further follow-through gains, but the move stalled. German IFO confidence was in line with the PMI’s. Sentiment among German firms improved slightly from 86.9 to 87.2, the third consecutive gain as businesses turned slightly more positive/less negative both on their current situation as on the expectations. Ifo concludes that the German economy is stabilizing at a low level. The impact of the release was negligible. Comments from ECB Chair Lagarde and colleagues were considered as balanced, maybe even tentatively soft. At a Bundesbank event, the ECB Chair said that the ECB had already done a lot and that it’s now time to attentively observe the impact on the economy. It then can decide how long to stay at current position and on what decision to make next. Higher rates still are not excluded, but this clearly isn’t the most likely scenario the ECB Chair has in mind. ECB vice Chair de Guindos kept a similar balanced approach as he pointed to downside risk to the economic outlook. ECB’s Villeroy was even more outspoken as he said that the ECB won’t raise rates again, ‘excluding surprises’. This assessment of course doesn’t contradict the higher for longer narrative. It also doesn’t mitigate the ‘supply risks’ that might further weigh, especially on the long end of the curve. Still it was enough to block a further rise in yields. German yields are rising 1.5-2.0 bps across the curve. European equities still show marginal gains (EuroStoxx50 + 0.15%). US indices open little changed. Oil is going nowhere near $81.3 p/b looking for the OPEC+ decision on quotas at a virtual meeting next week. US PMI’s released at the time of finishing this report printed mixed. The composite index stabilized at 50.7 as services improved (50.8 from 50.6) while manufacturing dropped back in contraction territory (49.4 from 50.0). Impact on (bond) markets is limited.
Moves in major FX cross rates mostly are technically insignificant. The dollar is modest ground. DXY trades near 103.50 (from 103.75). EUR/USD (1.0925) is holding north of 1.09, but the key 1.0960/65 area remains intact. USD/JPY trades little changed near 149.55. Modest gains of the yen after slightly higher Japanese inflation data this morning couldn’t be sustained. Sterling remains better bid. After yesterday’s better than expected PMI, GfK consumer confidence (-24 from -30) was enough a reason for some further sterling outperformance (EUR/GBP 0.868).
News & Views
Czech consumer confidence fell from 92.7 to 90.7 in November. Consumers postpone making major purchases as they feel their financial situation is worse than 12 months ago and fear that they’ll be even worse off in 12 months’ time. The number of respondents expecting a worsening of the overall situation in the Czech Republic over the next 12 months remained almost unchanged compared to October. Business confidence improved from 92.8 to 93.5, a 3-month high. On a sector level, there are improvements in construction (+6.6), selected services (+1.3) and retail (+0.2) while industrial confidence slightly decreased (-0.3). The Czech koruna tried to escape the upward trend channel in EUR/CZK this week (support line currently kicking in at 24.35), but the move lacked dash.
Belgian business confidence rebounded from a 3-yr low of -16.8 to -15 in November (vs -16.5 expected). On a sector level, sentiment improvement significantly in business-related services (2.3 from -14.2) with trade enthusiasm (-15.5 from -20.1) and moral in building industry (-13.3 from -13.6) also better than in October. Only manufacturing sentiment deteriorated (-19.3 from -17.9). A simultaneously published quarterly business survey on credit conditions (October release) showed general conditions to access bank credit deteriorating from the previous quarter. 41.8% of firms surveyed considered them to be tight (up from 37.3%). The tightening of conditions was reported by firms across all sectors and of all sizes. Earlier this week, Belgian consumer confidence extended its rebound, rising from -5 to -4, the best reading since February 2022.
