In focus today
From the US, October PCE data is due for release. PCE inflation is expected to remain close to past month’s pace in both headline and core terms, in line with the CPI data released earlier. October durable goods orders and revised Q3 GDP data will be released at the same time.
In Sweden, the monthly financial markets statistics for October will be presented. The report contains interesting data such as lending data and average mortgage rates. Deputy Governor of the Riksbank, Per Jansson, will talk about current monetary policy and the economic situation at 8:30 CET.
Economic and market news
What happened overnight
In New Zealand, the Reserve Bank (RBNZ) lowered the interest rate from 4.75% to 4.25% in line with consensus expectations. Before the meeting there were some uncertainties about the size of the rate cut, with some participants expecting a very aggressive 75bp rate cut. Furthermore, Governor Orr signalled that more monetary loosening would come and did not rule out a further 50bp cut at the February meeting. Orr said that RBNZ expect cash rate to reach a neutral level between 2.5% and 3.5% by the end of 2025. NZD/USD rose above 0.5860 following this morning’s decision, and we expect the cross to trade close to its current level with 12m forecast of 0.58.
In the Middle East, Israel and Hezbollah agreed to a ceasefire. The ceasefire promises to end the conflict in across the border between Israel and Lebanon, which escalated after the Gaza war started last year. To repeat from yesterday’s DMM we wrote that President-elect Donald Trump previously communicated to Israeli Prime Minister Netanyahu that he wants the wars in Lebanon and Gaza to end before he enters office. Netanyahu’s willingness to sign a deal with Hezbollah could be part of his effort to please Trump and ensure he can still have US backing for his residual activities in Gaza, and possibly for targeting Iran.
What happened yesterday
In the US, the FOMC minutes released last night was in line with the signals provided by Chair Powell at the press conference, offering no significant surprises. The minutes reiterated that monetary policy is not on a pre-set course and underscored the importance of data dependency. Members, though, are particularly mindful of recent data volatility and the importance of focusing on the underlying tendencies. The minutes presented a positive view on inflation among members, with labour market data, inflation expectations, and pricing power indications reinforcing the disinflation narrative. We agree with these arguments and expect the FOMC to proceed with rate cuts at the next meetings.
US consumer confidence increased slightly more than expected in November to 111.7 (consensus: 111.3) against a revised-up October figure of 109.6. Labour market sub-indices gave somewhat mixed signals, as both “Jobs Plentiful” and “Jobs Hard to Get”-indices declined at the same time. Consumers still see their employment prospects as weaker than before the pandemic though. Plans for big ticket purchases declined a bit, but overall, nothing very surprising in the report.
In the euro area, the EU Commission approved French draft budget for now – but uncertainty remained. EU Commission said French draft budget met the requirements of the fiscal framework of being on a credible fiscal path. The only country that did not meet this requirement was the Netherlands. For 2025, the French budget’s net expenditure growth path was also assessed to be in line with the recommendation. The Netherlands was assessed not to be in line with the recommendation. Hence, the Commission had so-far approved the French budget, but the budget has not been passed in the French parliament yet. Marine Le Pen said that she could not support the budget in its current form, so French PM Barnier still risked losing a no-confidence vote on the budget if he did not change it. At the same time, he had to balance the risks of the budget then not being approved by the EU Commission. Hence, risks remained on French government finances until a budget was passed in Parliament even with today’s announcement from the EU.
Equities: Global equities were higher yesterday, which was particularly interesting as it marked the first full trading day following Trump’s post-election tariff comments. Consequently, it was no surprise to see the US significantly outperforming Europe, with European markets declining in response to Trump’s remarks. The surprise (if any) being that global equities were higher despite Trumps tariff threat.
There are two key takeaways here: Firstly, Trump’s messages do not provide much clarity on the potential outcome of trade war 2.0. Secondly, while Trump may believe his negotiation tactics are intelligent, they are damaging to the markets as they create uncertainty. In the US yesterday: Dow +0.3%, S&P 500 +0.6%, Nasdaq +0.6%, and Russell 2000 -0.7%. Asian markets are mostly lower this morning, except for Chinese markets, which are higher. Both European and US futures are mixed this morning, with core Europe underperforming.
FI: The divergence between US and German yields continued through yesterday’s session. US rates moved higher following the stronger than expected US consumer confidence data, while German bonds rose due to renewed political uncertainty in France. The OAT-Bund spread widened by 5bp to 127bp, the highest level since 2012, through following reports from Le Parisien that President Macron has lost confidence in PM Barnier and the government.
FX: NZD has been the outperformer over the last 24 hours amid this morning’s RBNZ meeting proving to be a slight hawkish surprise. EUR/USD has so far done little this week while the NOK has come under renewed pressure. SEK had a strong last week which in combination to the turn in NOK has brought NOK/SEK back to the 0.9840-mark – only two days after the cross tested the parity level. EUR/GBP remains in the last weeks’ trading range while USD/JPY continues its latest descent approaching new lows in November.
