In focus today

Attention shifts to French politics as the minority government faces a crucial test in passing a social security bill, which could trigger a no-confidence vote against the government. Previously reliant on tacit support from the National Rally, tensions have risen since Thursday last week, where they called the current proposal “unacceptable”. Hence, uncertainty remains in French politics, and it remains unclear if the concessions from Barnier will be enough to satisfy the National Rally. 

In Sweden, we get manufacturing PMI for November at 08:30. Compared to the major euro economies where PMIs are well below 50, the Swedish manufacturing sector has held up relatively well (October at 53.1). 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.

This afternoon, the US ISM Manufacturing index is due for release. Flash PMIs for November was below 50, although they showed slight improvement.

The week ahead will be dominated by US data releases, including JOLTs, ADP and ISM services. On Friday consensus expects the US jobs report to show a rebound in the employment growth of 200k, while we call for 165k. The FOMC’s blackout period before the December meeting begins on Saturday, yet prior to that, a long list of public remarks is scheduled for the week.

In the euro area, unemployment figures are released on Tuesday, while we receive retail sales data on Thursday. We will also have revisited Q3 GDP figures on Friday, which will include details on the growth composition.

Economic and market news

What happened over the weekend

In the US, president-elect Donald Trump threatened the BRICS countries with tariffs of 100%, if the group continues to work on a global alternative to the US dollar. Trump requires a commitment from the countries to neither create a new currency, nor back any other currency to replace ‘the mighty US dollar’. The threats aimed at the BRICS follow similar warnings of steep tariff increases on China, Mexico and Canada earlier last week.

In the euro area, HICP inflation rose to 2.3% y/y in November as expected (cons: 2.3%, prior: 2.0%). The increase in headline inflation was mainly due to base effects on energy inflation. Core inflation rose less than expected to 2.7% y/y (cons: 2.8%, prior: 2.7%). Most importantly, service prices increased only around 0.10% m/m seasonally adjusted in a positive sign for the ECB. Our 3m/3m SAAR measure of momentum declined to 2.7% in November from 3.4%. Hence, the trend lower in momentum of underlying inflation continued in November, which supports further rate cuts by the ECB.

In Sweden, Friday’s Q3 GDP surprised upside at 0.3% q/q and 0.7% y/y (cons: -0.1%, 0.1%, prior: -0.1%, -0,1%). The strong reading corroborates the positive NIER confidence data from last Thursday, hinting that the October decline in the NIER survey might have been an anomaly. Additionally, October’s retail sales data also came in positive at 0.4% m/m and 0.9% y/y (prior: 0%, 2.1%), suggesting a recovering retail sector on the back of improving sentiment among households and in the retail trade sector continued to improve in yesterday’s NIER survey.

In China, both measures of PMIs came out marginally better than expected in November. The official PMIs showed a marginal uptick in the manufacturing index, which printed at 50.3 (cons: 50.2, prior: 50.1), while the non-manufacturing index dropped to 50 (prior: 50.2) and finally composite at 50.8 (prior: 50.8). Additionally, the Caixin manufacturing PMIs surpassed expectations at 51.5 (cons: 50.5, prior: 50.3), with both new orders and employment rising. The positive readings follow the efforts from the government to support growth through the recent round of stimulus, which appears to be starting to take effect.

In the Middle East, rebels captured much of the Syrian capital Aleppo over the weekend, sparking renewed tensions in the region. President al-Assad has promised to restore order ‘with the help of friends and allies’, which suggests that the regime is awaiting support from Russia, Iran and Hezbollah to regain control. According to Bloomberg, the rebel alliance consists of Hayat Tahrir al-Sham, once linked to Al Queda, and several Turkish-backed groups.

Equities: Global equities were higher on Friday, with gains across most regions and all sectors. With last week’s stellar performance, we saw several indices setting new all-time highs, with November performance particularly driven out of the US. Although the US elections now seem distant, we must recall that just a month ago the VIX was above 20, accompanied by a considerable amount of uncertainty. Following last week’s drop, the VIX ended close to 13, and investors are now considerably more confident and feel much less uncertain, which largely explains the substantial equity returns harvested in November. It is also worth noting that November’s performance was not just driven by the MAG 7; the best performing sector was financials, and the best performing style was small caps. In the US on Friday, the Dow was up by 0.4%, the S&P 500 by 0.6%, Nasdaq by 0.8%, and the Russell 2000 by 0.4%. This morning, most Asian markets are higher, led by Taiwan. US futures are marginally lower, while European futures are starting the week almost 1% lower.

FI: Friday last week, European rates continued the almost uninterrupted streak of decline through November. The entire German curve has essentially shifted 30bp down across all tenors with the 10y Bund yield ending at 2.08%. We have another busy week ahead of us with tap auctions from Germany, France and Spain. Reading the Markets EUR – Look out for funding statements in December, 29 November. In France, tensions are building with Le Pen intensifying the language and potentially going for a no-confidence vote, following intense disagreement on the budget. The French-German spread has tightened some 5-6bp since the midle of last week, but still stands at a wide 80bp spread. We do not expect a material tightening from here.

FX: EUR/USD traded about one figure higher last week, fluctuating within the 1.05-1.06 range, as the broad USD had its largest weekly drop in three months. This week, a packed US calendar is set to prove pivotal for the Fed’s December meeting and by extension for EUR/USD. USD/JPY slid down towards the 149-mark in a week when the JPY saw broad gains as market expectations for a BoJ rate hike in December gained traction. Friday’s set of data releases out of Norway failed to deliver any significant news to our macro- or FX-narrative for Norway: private goods consumption remaining weak, unemployment grinding modestly higher and an unchanged pace of Norges Bank fiscal FX transaction purchase into December. We remain strategically bearish on the NOK.

After Kim graduated from college in Seoul in February 2023, she worked at several companies on a temporary basis while continuing her efforts to secure a position at a major conglomerate. However, she repeatedly faced rejection during the final stages of the hiring process.

"Every rejection feels deeply personal, and it started to take a toll on my mental health. So I made the decision to pause and focus on taking care of myself," the 27-year-old said, asking for anonymity due to privacy concerns.

Kim is one of many economically inactive young Koreans taking a break from the labor market for reasons not officially recognized by the government, such as raising children or pursuing education.

"While key employment indicators continue to show strong performance, a noticeable rise in the number of individuals classified as taking a break within the economically inactive population this year is striking," the Bank of Korea noted in a report published Monday.

While the core working-age population (aged between 35 and 59) and those aged 60 and older have shown little change in their economic activity, it is the younger generations with prior work experience who are driving the trend.

Data from Statistics Korea shows that the number of Koreans aged between 25 and 34 in this category has been increasing steadily, reaching 422,000 as of the third quarter of 2024. This represents a 25.4 percent increase compared to the same period last year.

The report highlights a significant decline in employment quality for these younger individuals compared to pre-pandemic levels.

"Young people typically have higher educational attainment than the core working-age group and are more likely to make voluntary job choices, reflecting higher standards for job selection," the report stated.

As a result, the "mismatch between the limited availability of high-quality jobs and these elevated expectations" has prompted many younger people to voluntarily withdraw from the labor market, coupled with companies' preference for hiring experienced candidates.

On the other hand, the employment quality of the core working-age population has improved compared to pre-pandemic levels.

Economic factors also appear to play a role in involuntary breaks. Individuals in this category were predominantly employed by small and medium-sized enterprises with fewer than 300 employees or in face-to-face service industries, suggesting that involuntary job separations are largely occurring in roles with comparatively lower job quality.

The report's authors cautioned that the prolonged periods of inactivity among youth could lead to permanent withdrawal from the labor market or a shift into NEET (Not in Education, Employment or Training) status.

A precedent can be observed in Japan. During the economic downturns of the 1990s and 2000s, employment conditions for younger people deteriorated disproportionately. The rise in young NEET people during that period gradually translated into an increase in NEET individuals within the core working-age population, prompting the government to expand policy support to those aged up to 49.

"The growing number of young people taking a break threatens to undermine the future labor supply, underscoring the need for targeted policy measures to reintegrate them into the labor market," the report stated.

Source: Koreatimes

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $68.25 on Monday. The WTI price edges lower as the stronger US Dollar (USD) broadly drags the USD-denominated commodity price lower. US President-elect Donald Trump's statement that he will impose tariffs has led to fears that it could slow the pace of the Federal Reserve's (Fed) easing cycle, boosting the USD. The rise of the USD against other currencies generally lowers oil demand by making oil more expensive for those who use foreign currencies.

According to the CME FedWatch Tool, the money markets have priced in a nearly 67.1% chance that the Fed will cut rates by a quarter point in December, while there is a 32.9% probability that the policy rate will remain unchanged.The encouraging Chinese economic data released on Monday could provide some support to the black gold, as China is a major consumer of crude oil in the global market. China’s Caixin Manufacturing PMI jumped to 51.5 in November versus 50.3 in October, beating the estimation of 50.5. This growth was driven by the increase in foreign orders since February 2023 and exports.Furthermore, heightened geopolitical tensions in West Asia raise concerns about supply disruptions from the region, which might lift the WTI price.

Iran extended its support to the Syrian government after insurgents took control of Syria’s Aleppo city.Looking ahead, Oil traders will keep an eye on the OPEC+ (Organization of the Petroleum Exporting Countries, and allies) meeting on Thursday to discuss output policy for 2025. The meeting was originally scheduled for Sunday. "An indefinite delay may be the best case for oil prices, given that earlier rounds of delays by a month or so have failed to drive higher oil prices in line with what OPEC+ intended,” said Tony Sycamore, IG's Sydney-based market analyst.

WTI Oil FAQs

What is WTI Oil?

WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.

What factors drive the price of WTI Oil?

Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.

How does inventory data impact the price of WTI Oil

The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.

How does OPEC influence the price of WTI Oil?

OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.

Source: FXSTREET

Source: yahoo finance

(Dec 2): Finance Minister Antoine Armand said France won’t accept artificial budget deadlines from Marine Le Pen even as the far-right leader gave her strongest indication yet that she’s prepared to topple the government as soon as this week.

Le Pen’s National Rally has threatened to support a no-confidence motion unless Prime Minister Michel Barnier tweaks his 2025 budget to index pensions to inflation among other asks. The far-right leader told Barnier he needs to make the changes by Monday, which is when opposition lawmakers are expected to initiate the process to call the vote of no-confidence.

“The French government doesn’t take ultimatums,” Armand said in an interview with Bloomberg Television on Sunday. “We won’t be blackmailed.”

Bond investors have punished France’s sovereign debt relative to its peers amid the political brinkmanship in Paris, pushing borrowing costs at one point last week as high as Greece’s and leading Barnier to warn of a “storm” in financial markets. The political difficulties and market jitters began in June when President Emmanuel Macron called snap elections in a bid to bring clarity in a National Assembly where his party was already short of an outright majority.

Le Pen, who heads the single biggest party in the National Assembly, already scored a victory last week after Barnier agreed to abandon raising taxes on electricity, one of the National Rally’s key demands. This emboldened the far-right party to add to its demands. A no-confidence vote could happen as soon as Wednesday.

The euro slipped in early Asia trading Monday as investors reacted to Armand’s comments. The common currency fell about 0.4% to around $1.054.

“The French political turmoil is certainly not helping the euro,” said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney. “An actual collapse of the government via a successful vote of no confidence would add another layer of uncertainty.”

Barnier’s budget legislation, which incorporates €60 billion ($63.5 billion) of adjustments, is an attempt to bring order to France’s fiscal situation, with the country’s deficit expected to reach 6.1% of economic output this year.

Budget Minister Laurent Saint-Martin told Le Parisien newspaper over the weekend that requests to amend the budget would cost nearly €10 billion and that the government wouldn’t make any further concessions.

Le Pen lashed out at the comments, telling the AFP newswire that Barnier’s administration “has put an end to discussions.” She has made clear that if her red lines aren’t met then her party will join with the left to topple the government. National Rally President Jordan Bardella accused the government of putting its very existence at risk “out of stubbornness and sectarianism.”

The far-right party’s increasingly combative stance has encouraged investors to bet that Le Pen is preparing to push out the government.

The yield premium between 10-year government bonds and safer German equivalents, a closely watched gauge of risk, recently touched 90 basis points — the widest since 2012 — before tightening back to around 80 basis points on Friday. France’s benchmark equity index is on track for its worst year relative to European shares since 2010.

France’s 10-year bond yield last week briefly matched Greece’s, a country once at the heart of the European sovereign debt crisis. Armand dismissed the comparison, saying France’s economy is solid.

“Greece has done an incredible job after the crisis to reduce public spending,” he said. “But France is not Greece. France’s economy is not Greece’s economy.”

Macron’s gamble with a snap election left the lower house split into three fiercely opposed blocs: a diminished center supporting the president, a leftist alliance and a strengthened far right led by Le Pen. With no coalition possible, Macron appointed Barnier prime minister in September with a core mission to get France’s messy finances in order.

Even before the political turbulence of the last several weeks, France’s finances were a growing concern for investors as plans to reduce debt slipped off course at the end of 2024. With tax revenue far below estimates, the government now expects the budget deficit to reach 6.1% of economic output this year instead of declining to 4.4% as initially planned.

Barnier’s 2025 budget aims to narrow the gap to 5% with shock therapy of €60 billion of tax increases and spending cuts. In the interview, Armand insisted that wavering on the commitment to reduce the budget deficit toward 5% in 2025 and toward 3% to in 2029 was “not an option.”

“What’s my responsibility as a finance minister is to commit to the 5% target that we decided to have at the beginning of our mandate, not only for France or for the government because it’s now needed in order that Europe stills remains a continent of prosperity,” he said.

There aren’t precedents for a government collapsing so close to the end-year deadline for a budget. Still, lawmakers and legal experts have pointed to emergency measures that could permit the state to collect taxes and decrees to authorize minimal spending in order to avoid a shutdown.

The National Rally has said it would support such an outcome, while ministers have warned it could inflict harmful austerity and impair efforts to repair finances. Le Pen also played down the consequences of having no budget by end year, telling the newspaper La Tribune that “the French system is well designed, and there’s absolutely no reason to panic, because nothing is definitive.”

If Barnier is evicted from office, Macron would have to re-appoint him or pick a new premier. But the president would face the same difficult balancing act with no possibility for fresh legislative elections until July.

Any new government that emerges would still need urgently to propose a 2025 budget.

Armand sought to reassure investors, saying he’s confident France will continue to reform its economy and attract investors.

“France is committed to keep this European leadership with Germany, with Italy, with Spain, with all European countries so that this growth agenda could be the best answer to the international and trade tensions that are going on now,” he said.

Source: Theedgemarkets