OPEC+ is discussing an extension of its production cuts until the end of the first quarter of 2025, Reuters has reported, citing unnamed sources from the group.

OPEC+ is meeting on Thursday to co-ordinate production policy and extending the cuts is the most logical course of action in light of recent price trends, which have seen the benchmarks stuck below the level that most large OPEC+ producers need to be make their budgetary ends meet.

OPEC+ agreed the cuts last year in response to the slide in prices following their strong rally in 2022. The cuts worked to stabilize prices but the slide soon resumed, driven by weakening Chinese demand growth after the post-lockdown boom and predictions that peak oil demand is not far on the horizon.

That, and the perception of ample supply despite the cuts has served to keep oil prices in a rather limited range, prompting OPEC+ in turn to keep extending its cuts despite plans to gradually begin returning supply to market this year and restore the full volume of the cuts by the end of 2025.

The total amount in daily supply withheld by the cartel stands at some 5.86 million barrels daily. Despite the quite significant size of the cuts, traders have shrugged them off, looking at China where demand growth has weakened this year, after soaring two years ago following the end of the pandemic lockdowns.

Most analysts appear to agree with that perception of weak demand and ample supply. Some, however, are warning that the supply and demand situation of crude oil may be rather different than that perception.

“We think that oil prices are about $5 per barrel undervalued relative to the fair value based on the level of inventories,” Goldman Sachs analysts said recently, implying a market correction may be on the horizon.

Source: OILPRICE

Macro data and headlines

The US ISM Manufacturing PMI rose to 48.4 from 46.5 and above the 47.5 consensus. New orders returned to expansion, rising from 47.1 to 50.4 while production rose to 46.8 from 46.2, prices fell to 50.3 from 54.8 and employment rose to 48.1 from 44.4. It was a goldilocks report that boosted sentiment on the state of the US economy.

Fed’s Chris Waller stated he leans towards supporting a cut in December, although added that one could argue a case for skipping a rate cut and that he will be watching data closely to decide. Waller is an influential member and his dovish-leaning comments sparked market optimism. Other Fed members like John Williams and Raphael Bostic also hinted at a December Fed rate cut.

Marine Le Pen’s far-right party pledged to topple French PM Michel Barnier’s government after he used a constitutional tool to push through parts of his budget bill without a parliamentary vote. Reuters reported that a no-confidence vote may be likely Wednesday. If the no-confidence vote passes (and nothing is certain in French politics) Barnier would have to tender his resignation. However, Reuters reports that "Macron may ask him and his government to stay on in a caretaker role to handle day-to-day business while he seeks a new prime minister, which could well happen only next year."

China’s top leaders plan to start the annual closed-door Central Economic Work Conference next Wednesday to map out economic targets and stimulus plans for 2025.

Equities

US: The S&P 500 and Nasdaq 100 closed at record highs, up 0.24% and 0.97% respectively, driven by large-cap tech stocks such as Meta (+3.2%), Tesla (+3.5%), and Apple (+1%). Super Micro Computer soared 28.7% after its financial reports were validated by a special committee. Conversely, the Dow Jones declined by 0.29% as industrials underperformed.

Asia: Japanese equities surged, with the Nikkei 225 rising 1.6% and the TOPIX up 1.3%, supported by gains in technology and industrial stocks like Tokyo Electron (+4%). South Korea's KOSPI also climbed 1.6%, led by tech giants Samsung and SK Hynix. Meanwhile, Chinese stocks saw mixed performance, with mainland indices down slightly, weighed by new US export restrictions on Chinese chipmakers, while Hong Kong's Hang Seng rose modestly.

Europe: European markets closed higher, with the Stoxx 50 gaining 1% and the Stoxx 600 rising 0.5%. Novo Nordisk, LVMH, and SAP were among the top performers. However, Stellantis dropped 6.3% following the abrupt resignation of CEO Carlos Tavares, citing board conflicts amid a challenging US market.China’s top leaders plan to start the annual closed-door Central Economic Work Conference next Wednesday to map out economic targets and stimulus plans for 2025, according to people familiar with the matter.

Volatility

Fixed Income

Commodities

Gold found fresh demand on Monday after briefly dipping towards $2620 as the dollar strengthened following Trump’s warning to BRICS against supporting dollar alternatives. Silver meanwhile traded higher overnight and are now in a better position to respond to supportive news after speculators cut their net long to a 9-month low.

WTI crude oil futures stabilized at $68, driven by positive economic data from China, as traders looked ahead to Thursday’s OPEC+ meeting and after a survey showed the group increased production by 120kbd last month.

European natural gas futures rose to near €50/MWh due to colder weather forecasts and supply concerns with inventories being 85% full, down from 95% last year.

Arabica coffee slumped the most since 2021 on Monday, down 7% driven by profit taking and margin calls in the futures markets, after prices failed to break the 1977 record.

Currencies

The dollar index rallied on Monday, weakening most G10 currencies, not least the euro which fell 1.1% against the dollar amid France's political crisis.

The yen outperformed, while the Swedish krona and Norwegian krone, and euro were among the weakest.

GBPUSD traded mixed, falling against the dollar after house prices rose by the most since March 2022, while rallying versus the under-pressure euro.

USDJPY trades back above 150 after Monday’s drop as yen gains were seen as excessive.

While President-elect Donald Trump's policies have led to widespread negative forecasts for the Asian stock market in 2025, there are still ample opportunities to find value within Asian equities, according to international asset manager Robeco, Tuesday.

At a press conference held in Seoul, Joshua Crabb, head of Asia-Pacific equities at Robeco, forecast that although tariffs may increase as Trump implements his "America First" policy, various economic stimuli under consideration in Asian countries could mitigate the impact.

Crabb also assessed that the tariff levels proposed in Trump's campaign pledges are unlikely to be fully realized in practice. Even in the worst-case scenario, individual countries could reduce tariffs through trade negotiations.

He further anticipated that opportunities would emerge in the Asian market due to the high valuations of the U.S. stock market. While these valuations are supported by strong earnings performance, the elevated expectations in the U.S. market could make it increasingly difficult to sustain its bullish trend.

In 1999, global liquidity also flowed dominantly into the U.S., but as the bubble burst, the market suffered a more significant decline, Crabb added.

Crabb highlighted that the Asian market is currently undervalued compared to the U.S. "Expectations are very low, creating a great opportunity," he noted.

Korea received positive evaluations for the steady progress of its Corporate Value-up Program. Drawing on Japan’s experience, Crabb pointed out that implementing value-up strategies can yield significant benefits regardless of broader economic conditions, thereby creating meaningful investment opportunities.

India remains highly attractive, with recent stock price corrections presenting a buying opportunity. Meanwhile, China's stock prices are at their lowest levels, suggesting that even minor positive developments could trigger a sharp rebound. Members of the Association of Southeast Asian Nations were also highlighted as appealing due to supply chain diversification and increased foreign direct investment.

Source: Koreatimes

USD: JOLTS data looks the key threat to the dollar today

Political drama in Europe and weak trends in many emerging market currencies are keeping the dollar bid. We doubt that this environment will change anytime soon, although we would look out for today's US JOLTS job opening data (16CET) as the main threat to the dollar today. Fortunately, we had another great speech from the Fed's Christopher Waller last night indicating his inclination to vote for a rate cut on 18 December. The market currently prices 18bp of a 25bp Fed rate cut and so there is room for short-dated US rates and the dollar to fall were the JOLTS data today to surprise on the downside and signal further slack (e.g. a decline in the job opening to employment ratio) in the US labour market.

However, on the international stage, the currencies of many US trading partners are suffering from some home-grown problems. In Europe, it looks like the French government may fall by the end of the week. And many of the BRICS currencies are under pressure. This has less to do with the weekend threats from Donald Trump to tariff any country threatening to support a pre-eminent reserve currency other than the US dollar. That said, those weekend comments merely add another layer of tariff threats to China. Overnight, USD/CNH has pushed up to the highest levels since July as the People's Bank of China fixed USD/CNY close to 7.20. It looks like USD/CNY will test the upper 2% band (7.3430 if fixings remain near 7.20) of the onshore range.

We also have the Brazilian real under intense pressure as President Lula waters down fiscal reform – perhaps with one eye on the 2026 Presidential elections. And after many years of stability (and enjoying carry trade inflows) it looks like the Reserve Bank of India has set the rupee free. USD/INR is now trading at all-time highs (as is USD/BRL) after third-quarter Indian GDP disappointed last week. Our point here is that EMFX looks set to face some of the biggest challenges since the pandemic in 2020 – which is dollar-supportive.

Expect DXY to stay bid in a 106-107 range today, unless the JOLTS data surprises sharply to the downside.

EUR: French politics to limit euro recovery

French political drama sent EUR/USD below 1.05 yesterday. Rate spreads have pushed out to the wides of the year as the market assumes that pressure is only going to grow on the ECB for rate cuts if governments in both France and Germany are out of order. 

EUR/USD may not need to fall much further from here at the moment. And indeed there is some upside risk if US JOLTS data disappoints today. However, any EUR/USD correction may be limited to the 1.0550 area. Expect EUR/USD to pay increasing attention to the French-German bond spread and the French sovereign CDS to see how far investors are prepared to push French sovereign risk. 

We are a little surprised not to see EUR/CHF trading below 0.93 on this news and continue to favour a retest of 0.9200/9210 over the coming months.

CEE: Tactical reasons to see more gains

This morning we saw November inflation in Turkey, which fell from 48.6% to 47.1% YoY, slightly higher than market expectations. The 2.2% MoM reading may cast some doubt on whether the Central Bank of Turkey can start its cutting cycle at the December meeting. Hungary will also release final third-quarter GDP numbers, which should confirm the economy's return to recession with -0.7% QoQ. Also in Hungary, we could see several speakers today including the Minister for Economy Marton Nagy.

CEE FX continues to diverge with HUF weakening further following Moody's decision to change the rating outlook from stable to negative and also lower EUR/USD. On the other hand, PLN and CZK continue to gain. As we discussed yesterday, while we believe this part of the region should follow HUF, tactically we see reasons for further gains here this week.

Both PLN and CZK markets underperformed the rally in EUR rates yesterday, further stretching rate differentials to support the currency. In CZK in particular, we see a renewed relationship between rates and FX, which could lead below 25.200 EUR/CZK this week. PLN is not showing such a strong relationship but is likely helped by the closure of earlier short positioning, which is dampening the pullback of lower EUR/USD. Additionally, the National Bank of Poland press conference on Thursday has the potential for some hawkish repricing, which would add additional impetus to PLN and we could see levels below 4.280 in EUR/PLN this week.

BRL: Breaking free

USD/BRL is trading comfortably above 6.00 as President Lula seems to be happy to prioritise politics over financial markets. Here his government has watered down planned fiscal consolidation with some tax breaks for lower-income households. The independent central bank seems happy to let the Brazilian real take the strain as a means to coerce a political U-turn on the fiscal side. Here, the central bank has a large pool of FX reserves and is currently tightening interest rate policy – but so far has avoided FX intervention or threatening more aggressive rate hikes.

With a difficult external environment and no sign yet of a fiscal U-turn, it is hard to see $/BRL turning lower. We have a 6.25 12-month forecast for USD/BRL. If things go very wrong for Brazil and the real effective Brazilian currency falls back to the lows in 2020, then USD/BRL could be a 6.50 story.

Source: AP

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.