In focus today

From the US, October retail sales and industrial production data will provide markets with the latest hard evidence of the health of the US consumer and manufacturing sectors. We expect that with still positive employment and solid wage gains, retail sales should remain on a steady growth path over the coming months.

In the euro area, the European Commission publishes its economic outlooks for 2025 and 2026. It will be interesting to follow their changes in projections as a signal of what we can expect from the ECB at their new projections in December, which will guide the monetary policy.

In Sweden, SCB publishes the October results from the Labor Force Surveys. While a further increase cannot be completely ruled out, we anticipate peak levels will be reached soon, and unemployment should start decreasing during next year. Importantly, the monthly unemployment figures should be assessed with caution due to their relatively high volatility.

Economic and market news

What happened overnight

In China, the monthly batch of data for October gave a mixed picture. Growth in retail sales exceed expectations at 4.8% y/y (cons: 3.8%, prior: 3.2%), reflecting how the country’s recent stimulus efforts are kicking in. Conversely, industrial production and fixed asset investments fell short of expectations, printing 5.3% y/y and 3.4% y/y, respectively (cons: 5.6%, 3.5%). New home prices dipped 5.9% y/y, sliding the most in annual terms since October 2015. The monthly figure, however, fell 0.5% m/m, compared to the decline of 0.7% in September, signalling that stimulus measures are starting to support the fragile housing sector.

In Japan, GDP growth for Q3 matched consensus, growing a modest 0.2% q/q SA following the 0.7% rebound in Q2. Private consumption was stronger than expected, whereas capital spending and net external demand (exports minus imports) fell 0.2% q/q SA and 0.4% q/q SA, respectively. The decline in net external demand particularly stood out compared to consensus of 0.1% q/q SA growth.

What happened yesterday

In the US, yesterday’s data releases had limited market impact. Akin to CPI on Wednesday, October PPI was very much as expected, increasing in October, with headline and core at 0.2% m/m SA and 0.3% m/m SA, respectively. While jobless claims edged slightly lower to 217k, the move was nothing too dramatic.

Fed Chair Powell stressed that the economy is not yielding any signals that the Fed should be in a hurry to slash rates. At the same time, Powell highlighted that the current sound economic backdrop gives the Fed time to approach their decisions carefully, hinting that the Fed likely will cut rates gradually, with inflation coming closer to the 2% target, “but not there yet”. We pencil in a rate cut of 25bp cut in December.

In the euro area, industrial production declined by 2.0% m/m in September (cons: -1.4% m/m, prior: 1.5%). Given that the data is quite volatile on a monthly basis and this month was driven by a downtick in Ireland of 11%, we focus more on Q3 as an average. In Q3, industrial production declined 0.3% q/q, highlighting that industry remains weak, likely dragging on activity. The outlook for the coming quarters remains bleak and we do not expect a recovery in the sector before H2 2025 when interest rates likely have declined further.

Euro area employment continued to grow in Q3, increasing 0.2% q/q compared to a downward revised 0.1% in Q2, albeit when judged on the second decimal it was broadly unchanged (from 0.15% to 0.18%). Hence, the euro area labour market remains resilient. The employment situation is heterogeneous across euro area countries. The strength is due to continued increases in employment in Spain, while the picture in Germany is very different with employment declining in Q3. However, we see clear risks of the labour market weakening in the quarters ahead. We expect aggregate euro area employment growth around 0.0-0.1% q/q in the coming quarters as the EU Commission employment expectations index indicates continued mildly positive employment growth in Q4 and indicators of services demand remain positive. The outlook for the euro area is driven by our expectations for employment gains in Southern Europe countered by employment declines in Germany. We see risks as tilted towards the downside due to the weak manufacturing sector, as indicated by the weak wage agreement in German IG Metal for 2025.

Minutes from the ECB’s October meeting indicated that risk management considerations were central to its decision to cut rates by 25bp to prevent unnecessary economic strain. Policymakers emphasised that the risks of cutting in October and potentially being too early in the easing cycle were lower than the risks of waiting and potentially acting too late. It was also highlighted that the ECB could pause its cutting cycle in December if activity improves. We believe that the ECB will deliver another 25bp cut in December, bringing the deposit rate to 3.00%.

In Sweden, the final inflation data for October was in line with last week’s flash estimates. Decomposing details, the upside deviation seemed to be more broad-based than we had expected and not fueled by higher food prices. There were no worrying developments in the data, however.

Equities: Global equities were lower yesterday, albeit with significant regional variations. European stocks outperformed their US counterparts by approximately 2%, on a day when macroeconomic fundamentals did not provide any material reasons for this divergence. Additionally, the long end of the bond market was more or less moving in sync, and dollar continued to strengthen. In our opinion, this relative movement is a result of some reversal of the massive outperformance the US has demonstrated recently. Indeed, the US has displayed superior macroeconomic and microeconomic data, but not enough to justify the US outperformance we have seen. Hence, the Trump victory/trade has simply caused investors to flock to the US. This trend can be observed in both positioning and flow data, but the real alarm is sounded by relative valuation. Following the post-election movements, the US premium to Europe reached 65% based on a 12-month forward P/E ratio. To put it in perspective, when Trump was elected president back in 2016, the premium stood at 14%. With the movements in equities yesterday, individual stock performance, and for that matter, crypto currencies, it seems that we have put the largest part of the Trump trade behind us. Hence, going forward, both absolute and relative performance should again increasingly be driven by fundamentals. Some of the most extreme Trump trades are also prone to reversal.

In the US yesterday: Dow -0.5%, S&P 500 -0.6%, Nasdaq -0.6%, and Russell 2000 -1.4%.

Asian markets are quite varied this morning, though the major markets are leaning higher. European and US futures are lower.

FI: Global yields generally declined yesterday with the 10y point in Germany down about 8bp. Late in the evening, Powell’s remarks on the Fed being in “no hurry to lower rates” spurred a sell-off in USD rates wit 2y treasuries rising 10bp to 4.35% and markets taking out 5bp of December Fed cut pricing. European markets are expected to see some spillover this morning.

FX: Powell’s remarks on the Fed being in “no hurry to lower rates” spurred a second wind for the USD during US hours where EUR/USD briefly touched below 1.05. Scandies recovered some of the previously lost ground vs the euro and NOK/SEK kept above 0.9850 throughout the session. USD/JPY continues to edge higher whereas EUR/GBP defied otherwise elevated G10-volatility and traded remarkably stable between 0.8310-0.8320.

Source: AP

Silver price (XAG/USD) trades in negative territory around $30.35 on Friday during the early European session. The white metal remains vulnerable amid the stronger US Dollar (USD). Traders await the release of the US October Retail Sales report on Friday for fresh impetus. The Fedspeak will be closely monitored as it might offer some hints about the US interest rate outlook. Donald Trump's victory in last week's US presidential election sparked expectations of potentially inflationary tariffs and other measures by his incoming administration, boosting the Greenback. 

Meanwhile, the US Dollar Index (DXY), a measure of the value of the USD against a basket of six currencies, currently trades near 106.80 after hitting a fresh year-to-date high near 107.05 in the previous session. The 10-year US Treasury bond hit the highest since start of July at 4.48%. The renewed USD demand could undermine the USD-denominated Silver as it makes the white metal more expensive in other currencies, dampening demand. China's National People's Congress (NPC) meeting last week failed to deliver the immediate fiscal stimulus that investors were expecting. The concerns about sluggish demand could weigh on the Silver price as China is the world's major importer of silver. On the other hand, record-high industrial demand for silver might support the white metal in the near term.

According to the Silver Institute and consultancy Metals Focus, demand for silver across industrial applications is expected to increase 7% YoY in 2024, reaching 700 million ounces (Moz). Additionally, analysts expect the global silver market to show a physical deficit of around 182 million ounces in 2024, marking the fourth consecutive year of shortfall.

Silver FAQs

Why do people invest in Silver?

Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.

Which factors influence Silver prices?

Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.

How does industrial demand affect Silver prices?

Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.

How do Silver prices react to Gold’s moves?

Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.

Source: FXSTREET

(Nov 15): Asian currencies found some support on Friday after a volatile past few sessions, with the Singapore dollar and Thai baht creeping higher, while Malaysia's ringgit held its ground despite a slowdown in growth in the third quarter.

Stocks in the region were a mixed bag with shares in Indonesia losing 1.3% to fall to their lowest since early August, while those in the Philippines advanced 1.6% breaking a seven-day losing streak.

Emerging market assets have been under pressure since early last week on the view that US President-elect Donald Trump's proposed tariffs could further stoke inflation which could mean fewer Federal Reserve rate cuts.

"Optimism that was initially sparked by Fed easing bets around the middle of the year have largely evaporated," DBS analysts said.

"Against this challenging backdrop, scope for Asia central bank easing has become more restrained while investor sentiment on local currency bonds/rates have also become more muted."

The Malaysian ringgit and Thai baht have lost 3% and 3.8%, respectively, since Nov 5 as their open, trade-reliant economies, particularly with China, make them vulnerable to any tariff-related headwinds.

On the day, the ringgit was steady while stocks in Kuala Lumpur inched lower after third-quarter economic growth came in line with expectations but slowed from an 18-month high in the previous quarter.

The central bank maintained its growth outlook for this year between 4.8% and 5.3%, and noted the US elections results could usher in near-term volatility but that it was too early to speak on the impact.

The South Korean won, highly sensitive to the yuan and trade relations with the United States, has also lost more than 1% since the outcome of the US elections became clear. It was up 0.1% on the day.

The Thai baht added 0.4% on Friday while shares in Bangkok inched lower after a Reuters poll showed Southeast Asia's second-largest economy would log its fastest growth in more than a year in the September quarter.

The rupiah hovered near its three-month low for a second consecutive day, slipping as much as 0.6% to 15,945 per dollar. The benchmark index in Jakarta declined for the fourth straight session, weighed by mining and energy stocks.

Overnight, US Federal Reserve chair Jerome Powell said the central bank was not in a hurry to cut interest rates, indicating borrowing costs may remain higher for longer.

The dollar hovered near its one-year high against a basket of currencies, eyeing a weekly gain of 1.8% - its best performance since September, if the trend holds.

"In the longer run expect the USD to fade although near-term risks are to the upside," Maybank analysts said.

In Sri Lanka, President Anura Kumara Dissanayake's coalition, the National People's Power (NPP), won a majority in a snap general election. Markets in Sri Lanka were closed on Friday.

Source: Theedgemarkets