At the October European Central Bank meeting, President Christine Lagarde said that everything was heading in the same direction: downwards. She put a lot of emphasis on the PMIs, which had just dropped below 50 – signalling contraction – in September. Since then, the most important indicators have actually gone up, including GDP and inflation.

The November PMI is another wake-up call for eurozone policymakers that the economy continues to show signs of weakness. But after the third-quarter GDP figures showed an acceleration, the question is how seriously this signal will be taken. The boy who cried wolf comes to mind. But don’t be mistaken, the underlying message is in line with GDP growth slowing markedly. We expect the fourth quarter to show stagnation with 0% growth.

According to the survey, the services PMI also dropped below 50 and signalled contraction. New business is weakening again for both manufacturing and services with export orders in particular being down sharply as the eurozone economy battles weak demand from abroad. Businesses also became gloomier about the outlook for the year ahead.

For prices, there was a small uptick in input cost inflation for the service sector, likely related to wage growth. Output prices also rose a bit compared to last month, but remain below last year’s average. Ultimately, price pressures remain muted and with demand continuing to come in weaker, worries about persistent above target inflation should fade. Amid a lot of noise around the direction of the eurozone economy, that sign is something to take seriously.

Source: AP

Moodiness due to a lack of a strong post-earnings rally from Nvidia remained short-lived. Investors rapidly shrugged off the company’s warning that the profit margin will dip to 73% on manufacturing challenges of the Blackwell chips, and thought they could cope with that small deterioration. The shares fell well short of the 8-10% rally that the market was prepared for, and posted a meagre 0.53% rise post earnings. But nevertheless, the stock hit a fresh ATH even though the move was far less than impressive. Nvidia couldn’t offer the major US indices a fresh record, as Big Tech companies were mostly sold yesterday. Google lost 4.5% on Department of Justice’s demand to sell Chrome. But both the S&P 500 and Nasdaq gained the day after the Nvidia earnings, and consolidate near ATH levels.

The earnings season gently comes to an end with a stronger-than-expected performance for most of the S&P500 stocks. 8 of the 11 sectors in the index posted earnings growth, showcasing broad resilience despite macroeconomic challenges. Energy companies continued to face challenges due to weak oil prices but Big Tech has been a standout and the overall earnings proved better than the market expectations. The numbers didn’t point at any type of economic distress in the US and maintained the soft-landing narrative – also supported by broader macroeconomic data – well alive.

Of course, the strong economic growth is certainly good for business, but strong business is not necessarily good for taming inflation. Add to that Trump’s plans to cut taxes and impose tariffs on China and other partners, the inflation outlook doesn’t look supportive of sustained rate cuts from the Federal Reserve (Fed). As such, the US yields continue to feel the pressure of uncertainty regarding what the Fed should do in its December meeting. The probability of a December cut improved to 60% as the continuing claims in the US rose to a 3-year high, but the decision is more close to call than many think, imo.

In the FX, the US dollar is extending its rally, not necessarily on Fed expectations but on a fair amount of safe haven demand amid the mounting geopolitical tensions in Ukraine. The latest news suggest that Russia launched ‘a new kind of ballistic missile in to Ukraine’ as a response to Ukraine’s use of US missiles on Russia earlier this week. The latest escalation results in fresh sanctions against Gazprombank, which was the last major Russian financial institution that wasn’t concerned by the earlier sanctions as some European nations continued to pay their gas purchases from Russia via Gazprombank. They can’t anymore.

Even though Europe has a reduced exposure to Russia, cutting whatever was left of the Russian gas supplies will reduce the amount of supplies on the continent and threaten to boost gas prices as reserves decline. The European gas futures show an accelerated rally this week, while the US gas futures are exploding on the news. US nat gas broke above the summer peak, and this time, has probably taken out the $3 support sustainably. The upside pressure won’t be comparable to what we saw in the early days of the Ukrainian war, but the tense geopolitical environment has the potential to push prices toward the 3.50-3.60 range -the January peak.

Elsewhere in energy, the mounting geopolitical tensions give a hand to oil bulls. The barrel of US crude has stepped above the $70pb level, but faces a thick layer of offers between the $70 and 73pb range. The combination of weak global demand and ample supply keeps the macro-focused bears in appetite near these levels. But, the environment turns positive for tactical longs and US energy companies that will see the additional opportunity to increase their market share in Europe.

In the FX, the US dollar’s recent rise pushed the EURUSD down the 1.05 cliff yesterday, and Cable extended losses below the 1.26 mark. Investors will watch the flash PMI figures this morning to figure out how to rectify their euro and sterling positions, but the major driver of the market right now will likely remain the haven flows that favour the greenback against major peers. This being said, the solid appreciation of the US dollar, combined to rising energy prices, will likely ring the alarm bell among the European Central Bank (ECB) and the Bank of England (BoE) doves, and get them to tame their dovish expectations. The latter will probably support a recovery in both the euro and sterling once the geopolitical dusts settle.

In focus today

Today, in the euro area we receive November PMIs, an important factor for the ECB decision in December. The growth momentum has recently decreased, particularly driven by a slowdown in Germany. We expect manufacturing sector to remain well in contractionary territory, with the PMI expected to rise marginally to 46.4 in November (prior: 46.0), aligning closely with hard data due to the PMI index’s construction. Meanwhile, the service PMI is likely to remain above 50, indicating growth, but we expect a slight decrease to 51.2 (prior: 51.6), influenced by a modest contraction in expansion and seasonal effects.

We also receive country-specific November PMIs for France, Germany, the US, and the UK.

We have plenty of ECB speeches today including Lagarde and Schnabel.

Economic and market news

What happened overnight

In Japan, October core CPI was reported at 2.3% (cons: 2.2%, prior: 2.4%), holding above the BOJ’s 2% target. Additionally, Japanese manufacturing PMI decreased to 49.0 in November (prior: 49.2), indicating a contraction for the fifth month in a row. The figures will be among factors the BOJ will discuss at its next policy meeting in December

What happened yesterday

In the euro area, consumer confidence declined to -13.7 in November (cons: -12.4, prior: -12.5). The decline comes after a long upward trend during the past two years. Taken at face value the decline increases downside risks to the growth outlook. However, the series does fluctuate a bit from month to month and we have seen similar declines in single months in past two years that are then reverted in the following month. As private consumption is expected to be the main growth driver in the coming year it is important to follow consumer confidence going forward to see whether this month’s decline was just one blip or a more serious change to the previous upward trend.

In the US, jobless claims reached a six-month low at 213k (cons: 220k), indicating a relatively resilient labour market. However, we got a slightly weaker Philly Fed index registering at -5.5 for November (cons: 8.0, prior: 10.3). This figure remains within typical range observed over the past few years, albeit somewhat below average pre-covid levels. Neither of these data releases is expected to have a significant impact on the markets.

Yesterday, one of the Federal Reserve officials Golsbee said that he could see policy rates moving “a fair bit lower”, but that the Federal Reserve would still need to determine the level for the neutral rate, but it was a “long way from where we are right now”. This morning, we have seen US Treasury yields decline modestly in Asian trading.

In Norway, mainland GDP grew by 0.5% q/q (cons: 0.3%, prior: 0.1%). This robust growth in Q3 was largely driven by the petroleum related-, chemical- and pharmaceutical industries, which performed much better than anticipated. From the expenditure perspective, it is evident that oil investments and public sector spending were the primary catalysts for growth, with public investments and consumption alone contributing a full percentage point to Q3 growth.

Equities: Global equities were higher yesterday, with Europe registering a slight outperformance in a global context after a roller-coaster day. The situation in Europe is particularly intriguing at present. While most investors would agree that European equities are considerably cheaper compared to those in the US, just as many would probably concur that the European outlook is much cloudier, with uncertainty leading to a pattern of one step forward and two steps back. A potential game changer for Europe, both in relative and absolute terms, could be a pickup in manufacturing activity. Therefore, today’s flash PMI figures are, in our opinion, the most important data point of the month for Europe.

It is worth noting that yesterday saw relatively broad-based gains, with the utilities sector outperforming along with small caps on the style side. Consequently, we are increasingly observing markets returning to being macro-driven, with the influence of Trump’s trade policies gradually diminishing.

In the US yesterday, the Dow closed up by 1.1%, the S&P 500 by 0.7%, Nasdaq by 0.1%, and Russell 2000 by 1.9%.

This morning, we have Asia excluding China trading higher, with European futures also on the rise, while US futures were slightly lower.

FI: There was a modest decline in European government bond yields yesterday, while US Treasury yields rose modestly. This morning, we have seen a modest decline in US Treasury interest rates in Asian trading. One of the Fed members Golsbee stated that he could see rates “a fair bit lower” over the next year and that the neutral rate was a lower than the current level.

FX: The JPY and the USD gained yesterday and in particular vis-à-vis the EUR and the GBP. Notable mentions from yesterday, was the drop in EUR/USD below 1.05 and the rally in NOK/SEK back to parity.