In focus today
Several key data prints are due for release, led by the US October JOLTs labour turnover, an important measure of labour demand watched closely by the Fed.
In the euro area, focus turns to the release of the final manufacturing PMIs for November. The prior flash release caused a large market reaction, so it is important to follow the final release.
In Switzerland we get inflation data for November. Developments in the underlying price pressure will be key ahead of the upcoming SNB meeting on 12 December, when a step-up in easing pace is on the table.
Following the French political events of yesterday – read more below, French lawmakers now have until Wednesday to bring forward a motion of no confidence. Once the motion is brought forward, it must be voted in within three days. Investors await the outcome of the uncertain situation, EUR/USD is down, and French government bond yields are up since yesterday.
Economic and market news
What happened overnight
In China, the Yuan declined to its lowest level against the dollar in a year with USD/CNY climbing to 7.29 a 68bp change this month. The shift comes amid Trump tariff threats and monetary easing expectations. Similar movements were seen in equities, with China’s CSI 300 index down by 0.4%.
What happened yesterday
In France, Prime Minister Michel Barnier activated article 49.3 of the French constitution, allowing him to force through a social security bill, provided the government can survive an imminent no-confidence vote. Both the far-right Rassemblement National party led by Marine Le Pen and the far-left France Unbowed part have moved to set the no-confidence vote into motion. Following the unwinding political turmoil, 10-year French government bonds faced yields rising to 2.911%, widening the spread to 10-year German government bonds at 2.035% by 86bp.
In the US, the ISM Manufacturing PMI for November came in slightly above expectations at 48.4 (cons: 47.5, prior: 46.5). Notably, new orders rebounded to 50.4 from 47.1 in October and the uptick confirmed the positive signals seen in earlier PMIs, as employment improved, and price pressures appear to be cooling. On a more cautious note, order-inventory balances appear to be trending lower, indicating limited need for firms to ramp up production over the coming months.
Federal Reserve Governor Christopher Waller stated that he is currently inclined to support another interest rate cut later this month, given that inflation is still projected to decrease to 2%. The statement led investors to increase their expectations for a rate cut at the Fed’s December meeting, currently pricing just below 20bp for the meeting. We expect a 25bp cut in December.
In the euro area, unemployment rate remained unchanged as expected at 6.3%. Providing an unchanged view of the labour market, usually key to the economic and monetary policy outlook. So far, the labour market remains strong driven especially by Spain while the German labour market is clearly deteriorating.
In Sweden, the manufacturing PMI index for November climbed to 53.8 from 53.1 in October. Swedish manufacturing is going strong, especially when compared to the major euro economies where PMIs are well below 50. Last week, NIER’s manufacturing index bounced higher, though it remains in contraction territory. The weak krona and a solid US market are tailwinds, while the bleak outlook for Europe is a headwind.
In Norway, the manufacturing PMI dropped to 50.7 from 52.4 in November, and details even weaker with new orders at 47.0 and production at 46.4. Employment dropped marginally to 52.5 from 53.7, still providing solid labour market signals. The PMI has been extremely volatile since the spring, and we pay more attention to other leading indicators. That said, the more broad-based confidence indicator (quarterly) from Statistics Norway paints the same picture: there seems to be some weakening in the manufacturing sector as the strongest headwinds from oil investments are fading.
Equities: Global equities experienced an uplift yesterday, following a significant turnaround in Europe and solid performance in emerging markets. In the US, the majority of markets also trended upwards, albeit with narrow leadership primarily from mega-cap stocks, technology, communication services, and consumer discretionary sectors. To illustrate, only 3 out of 10 sectors in the S&P 500 registered gains, while 7 declined. Regarding yesterday’s performance in the US: Dow -0.3%, S&P 500 +0.2%, Nasdaq +1.0%, Russell 2000 -0.02%. This morning, Asian markets are showing gains, led by Japanese main indices, which are higher by more than 2% despite the currency remaining relatively stable. Futures in the US and Europe are also indicating a positive opening this morning, with Europe taking the lead.
FI: The chaos in French politics continued yesterday as far-right leader Le Pen filled motions to hold a no-confidence votes against PM Barnier and his government. The votes could take place already this week. The 10Y OAT-Bund spread continued widening, closing at a 12-year peak of 88bp, despite some initial tightening. The EUR swap curve (vs. 6M) moved some 5-6bp lower with the 10Y tenor reaching a 2-year low of 2.10%. ECB’s Kazaks added to the downward pressure on EUR rates by flagging that a 50bp cut at next week’s meeting will ‘definitely’ be discussed. The Bund ASW-spread held steady at 9-10bp. US swap rates closed slightly higher for the 2Y+ tenors following stronger-than-expected final PMI and ISM data for the manufacturing sector in November. Fed’s Waller’s comments on him ‘leaning towards a December cut’ moved the market pricing of rate cuts from 16bp to 19bp. We expect a 25bp cut.
FX: The USD began the week on a strong note, with EUR/USD dropping to around 1.05 with political uncertainty in France and Trump’s threat of a “100% tariff on BRICS nations” supported the broad USD. EUR/CHF edged lower during yesterday’s session trading around the 0.93 mark ahead of an eventful day for Swiss markets with the release of November inflation. While the USD crosses gyrated last week with USD/SEK spanning more than 20 figures, EUR/SEK remained in a tight range just above 11.50.
