Markets

The week started off with some Bund underperformance, both vs US Treasuries and UK gilts. With the front end adding up to 7 bps, European money markets are slightly paring bets on ECB rate cuts. The terminal rate in the recent repricing was brought down to less than 2%. Such a supportive monetary policy stance isn’t something we consider necessary based on the current economic data, even if the picture isn’t particularly rosy.

This week’s (German) PMI’s (on Friday) serve as a reality check and will be watched closely for signs of the economy further bottoming out. Greek Governing Council member Stournaras said in any case ”there’s going to be a number of cuts” and advocated going in steps of 25 bps, the next one all but certain to happen in December. Stournaras said borrowing costs could be close to 2% toward the end of next year. The UK curve joined the bear flattening move in Europe but the US parted ways. US rates were flat (3-yr) to 4 bps (30-yr) higher in a steepening move. Stocks trade on the backfoot in Europe and open mixed on Wall Street. The Nasdaq ekes out a small gain. Tech-heavyweights Tesla and Nvidia more or less cancel each other out with the former rising on speculation president-elect Trump will ease self-driven car rules. The latter slides over an overheating problem with its most recent chip ahead of Wednesday’s earnings release.

Currency markets are uninspired. The Japanese yen underperforms on a speech by Ueda. The Bank of Japan governor kept the cards close to his chest, not offering any particular hint on a potential rate hike at the December meeting. USD/JPY recoups some of Friday’s gains but remains sub 155. The euro is generally better bid after a horrible two first weeks in November, though we remain cautious on its upside potential. EUR/USD rises to 1.057. EUR/GBP builds on Friday’s momentum to trade around 0.837 ahead of UK inflation numbers on Wednesday and retail sales and PMI’s on Friday. The greenback on a trade-weighted basis is on track for a back-to-back loss to 106.5.

The crypto market captured some headlines with Bitcoin trading back above the 90k barrier. Gas prices on commodity markets hit a new one-year high as supply concerns add to higher demand. Oil prices rebounded the recent lows just north of $70/b (Brent) as well.

News & Views

Greek Prime Minister Mitsotakis said at a Bloomberg event that Athens is planning to repay next year at least €5bn of debt outstanding under the Greek loan facility with maturities ranging from 2033 to 2043. Before year-end the Greek government will still conclude a €7.9bn repayment of floating rate debt (also under GLF) which matures in 2026, 2027 and 2028. Greece has already paid back loans worth €5.3bn in December 2023 and €2.65bn in December 2022 thanks to good growth and the high primary surpluses it is running. The Greek debt ratio is on a downward path since peaking at 207% of GDP in 2020. Next year, it is expected to drop below 150% of GDP. Improving public finances helped the country regain its investment grade status at S&P and Fitch at the end of last year after losing it at the start of the EMU sovereign debt crisis.

The Czech National Bank published remarks on a panel discussion in which CNB governor Michl took part last Thursday. He reiterated his view that we are now entering a phase of higher inflation volatility around central bank targets, with an upside risk. Some degree of restriction is necessary to ensure low core inflation. Looking ahead, core inflation may need to be slightly below 2%. Since this is not reflected in the CNB’s current outlook, they are already discussing the appropriate time to pause rate cuts, likely at the next, December, policy meeting. The CNB cut its policy rate by 25 bps to 4% in November with neutral rates estimated to be at least 3.5%. EUR/CZK trades a tad weaker today, at 25.30.

Source: KBC Bank

Energy – Russian pipeline gas continues to flow

Oil prices rallied yesterday with ICE Brent setting almost 3.2% higher. A softening in the USD supported most of the commodities complex. However, for oil, a halt of production at the 755k b/d Johan Sverdrup field in Norway due to a power outage, and a drop in production at the Tengiz field in Kazakhstan provided further upside. In addition, geopolitical risks between Russia/Ukraine have increased after the US said it would allow Ukraine to carry out long-range missile strikes on Russia.

Despite the strength in the flat price yesterday, the prompt WTI time spread flipped into contango, which points towards a market that looks better supplied. Globally, our balance shows that the market will be in surplus through 2025. However, the size of the surplus depends on what OPEC+ decide to do when it comes to output policy for next year. The group will likely decide on this at their next meeting on 1 December.  

In natural gas markets, European prices only edged a little higher yesterday  (TTF settled 0.75% up on the day) despite Gazprom deciding to stop supplying gas under its long-term contract with the Austrian energy company, OMV. The halting of this supply was due to OMV saying it would not pay Gazprom for imports to recoup EUR230m in damages it was awarded in an arbitration. OMV said that potentially 5TWh per month of supply is at risk, which is roughly 500mcm (or less than 20mcm/day). However, while Gazprom has stopped supplying OMV under its long-term contract, we have not seen any meaningful drop in Russian pipeline flows to Europe yet. This suggests that Gazprom is still selling into the spot market in Europe. It is still important to remember that all Russian pipeline flows transiting Ukraine will likely stop at the end of this year when Gazprom’s transit deal with Ukraine expires, which is equivalent to around 15 bcm of annual supply.  

Agriculture – Sugar rises on Brazil mill closures

Sugar prices extended gains for a third straight session yesterday due to the prospects of sugar mills in Brazil having to shut earlier than expected for the season due to above-average rainfall. While this may impact short-term supply, the rainfall should prove beneficial for 2025/26 sugar production with the crush officially getting underway in April.

The USDA’s weekly export inspection data for the week ending 14 November shows that US corn shipments rose while soybean and wheat exports eased over the last week. Export inspections for wheat stood at 196.3kt over the week, lower than 353.4kt in the previous week and 378kt reported a year ago. Similarly, US soybean export inspections stood at 2,165kt, down from 2,363kt a week ago but up from the 1,631.5kt reported a year ago. For corn, US export inspections came in at 820.6kt, compared to 797.2kt from a week ago and 601kt reported a year ago.

Market Picture

The crypto market capitalisation hit a new high of $3.09 trillion on Monday morning (+1% in 24 hours), driven by altcoins. The Cryptocurrency Fear and Greed Index reached 90 over the weekend, with the index only higher in late 2020 and early 2021. By Monday, the index had fallen back to 83, still consistent with extreme greed.

The Altcoin Season Indicator has now risen from 23 on 4th November to 42, thanks to optimism around XRP and Dogecoin. Cardano is also gaining momentum.

XRP topped $1 for the first time in three years. On Saturday, the token climbed above $1.2, as it is sensitive to Gary Gensler’s possible departure. Under his leadership, Ripple has been in a constant legal battle with the SEC.

Bitcoin drifted down 3% on Saturday and Sunday, but on Monday, a 4% surge above $91,500 took it above this consolidation area. Institutional traders are activating at a time when retail traders are starting to lock in profits in Bitcoin and moving into altcoins.

Cryptocurrencies are perhaps the most notable market where retail is profiting at the expense of institutional rather than the other way around.

News Background

According to SoSoValue, net inflows into US spot Bitcoin ETFs totalled $1.67 billion last week, marking the sixth consecutive week of net inflows. Cumulative inflows since the launch of bitcoin ETFs in January rose to $27.46 billion.

Ethereum ETFs saw net inflows of $515.2 million last week, a record high since the funds were approved on 23rd July, which brings the total net inflows since the product launch to $178.4 million.

The distribution of implied volatility in the Bitcoin options market suggests a high probability of trading at lower levels. “The deleveraging risk could be significant,” Blofin warned.

A bill to create a Bitcoin reserve is up for a vote in the US Congress. It involves purchasing 1 million BTC (up to 200,000 BTC per year for five years). The Fed’s gold reserves will be used for this purpose. Speculation on this issue could be an important driver of Bitcoin’s rise against gold.

Solidion Technology, a manufacturer of electric batteries and components, announced that it will convert some of its cash reserves into bitcoin. The company plans to use 60% of its excess cash, all of its money market interest income and some of its future capital raising to buy the first cryptocurrency.