Europe

Wall Street

Asia-Pacific

Source: Euronews                                                     

Macro data and headlines

EUR/USD posts a fresh weekly high near 1.0580 in the European session on Friday ahead of the flash Eurozone Harmonized Index of Consumer Prices (HICP) data for November, which will be published at 10:00 GMT. The inflation report is expected to show that the annual headline and core HICP – which excludes volatile food and energy prices – accelerated to 2.3% and 2.8%, respectively.

Investors will pay close attention to the inflation report to get fresh cues about the European Central Bank’s (ECB) likely interest rate cut size in the December meeting. The ECB has already reduced its Deposit Facility Rate by 75 basis points (bps) to 3.25% this year.

Traders expect the ECB to cut its key borrowing rates at least by 25 bps in the December meeting. For 2025, traders see the ECB cutting interest rates in every meeting through June, pushing the Rate on Deposit Facility lower to 1.75% by the year-end, according to Reuters.

Market speculation for the ECB to cut interest rates by a larger-than-usual size of 50 bps is upbeat as officials are worried about growing economic risks. The two largest economies of the Eurozone, Germany and France, are going through a rough phase due to political uncertainty, a scenario that slows down government spending activities.

Also, weak German Retail Sales data for October points to economic stagnation. Month-on-month Retail Sales contracted by 1.5% after rising 1.2% in September. Economists expected the Retail Sales data, a key measure of consumer spending, to decline at a slower pace of 0.3%. On year, the consumer spending measure rose by 1%, slower than estimates of 3.2% and the prior release of 3.8%.

ECB Governing Council member and Governor of Bank of France François Villeroy de Galhau kept the option of an outsize interest rate cut on the table in his speech on Thursday. “Seen from today, there is every reason to cut on December 12. Optionality should remain open on the size of the cut, depending on incoming data, economic projections, and our risk assessment,” Villeroy said.

Daily digest market movers: EUR/USD advances as US Dollar corrects further

EUR/USD gains as the US Dollar (USD) extends its downside in a holiday-truncated week. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its correction below 106.00 on Friday. The USD Index started correcting on Monday after United States (US) President-elect Donald Trump nominated Scott Bessent, a veteran hedge-fund manager, for the role of Treasury Secretary.

Financial markets anticipated that Bessent would enact Trump’s economic agenda without disrupting external relations and fiscal discipline. “The objective of enacting tariffs will be “layered in gradually and the budget deficit will be reduced to 3% of Gross Domestic Product (GDP) by slashing spending, a move that won’t result in higher inflation than feared,” Bessent said in an interview with the Financial Times (FT) last weekend.

On the monetary policy front, market experts expect the Federal Reserve (Fed) to be cautious about interest rate cuts as the core Personal Consumption Expenditures Price Index (PCE) data, the Fed’s preferred inflation gauge, accelerated in October. The probability that the Fed will cut interest rates by 25 bps to the 4.25%-4.50% range in the December meeting is 66%, while the rest supports leaving them unchanged, according to the CME FedWatch tool.

In Friday’s session, the US Dollar is expected to remain sideways as US markets will open for limited hours on account of Thanksgiving holidays. For the next week, investors should brace for high volatility as a slew of employment and economic data will be published.

Technical Analysis: EUR/USD rises to near 1.0600

EUR/USD extends its upside to near 1.0580 on Friday. The recovery in the major currency pair appears to be a mean-reversion move, which could extend to near the 20-day Exponential Moving Average (EMA) around 1.0600. Still, the broader outlook would remain bearish as all short-to-long-term day EMAs are declining, pointing to a downside trend.

The 14-day Relative Strength Index (RSI) rebounded after conditions turned oversold and climbed above 40.00, suggesting that the bearish momentum has faded. However, the bearish trend has not been extinguished.

Looking down, the November 22 low of 1.0330 will be a key support for Euro bulls. On the flip side, the 50-day EMA near 1.0747 will be the key barrier.

Source: FXSTREET

Markets

US markets were closed for Thanksgiving yesterday, leaving European markets looking for their own dynamics. National inflation data from Germany (HICP -0.7% M/M and 2.4% Y/Y; unchanged October) and Spain (0% M/M and 2.4% Y/Y from 1.8%, core 2.4% from 2.5%) overall printed on the softer side of expectations, suggesting (modest) downside risks for today’s Flash EMU release. The decline of EMU yields to the incoming CPI data was initially modest/limited.

However, in afternoon trading, comments from Banque de France governor Villeroy clearly put other accents on the ECB’s strategy than board member Schnabel on Wednesday. The French governor indicated that the ECB needs full optionality in the current environment on the frequence and the size of rate cuts, including the December one. Inflation reaching the target sooner than expected also is a reason to bring rates to a neutral level and even a decline below neutral might be possible. Especially the latter assessment clearly diverged from Schnabel’s view. The combination of slightly softer than-expected CPI data and the Villeroy comments finally caused EMU yields to follow the path of least resistance, which currently obviously is still south.

German yields declined 3.8 bps (5-y) to 1.9 bps (30-y). Money markets see the trough in the EMU easing cycle next year near 1.75%. The Euro this time quite easily withstood the further decline in yields and closed only modestly lower at 1.0552 (from 1.0566). Growing tensions/uncertainty on the French budget didn’t impact the euro. The Eurostoxx 50 even added 0.54%.

US markets rejoin the action today. However with no US data scheduled for release, the focus in the US might be on the shopping malls rather than on Wall Street. Still, US yields this morning continue their recent corrective decline, ceding 3-4 bps across the curve. EMU November CPI data take center stage (headline expected at -0.2% M/M and 2.3% Y/Y from 2%, core expected 2.8% from 2.7%). 

Question is how much further markets will/can push expected easing next year, given what is already discounted (1.75% ECB depo rate in H2). For now, there probably is no trigger to row against the existing downtrend in EMU yields, but it might shift into a lower gear. On FX markets, the euro (EUR/USD) enjoys some relief as the correction in US yields and the dollar apparently still has some legs. DXY drops below the 106 handle (105.85). USD/JPY, also pressured by yen strength, is testing the 150 mark this morning. EUR/USD gains a few ticks (EUR/USD 1.0582), but the political/budgetary uncertainty in France probably will continue to prevent dynamic/sustained comeback.

News & Views

November Tokyo inflation numbers boost market odds that the Bank of Japan will conduct another rate hike at its December policy meeting. Prices in the capital region rose by 0.5% M/M on a headline level. That’s the third such increase in the past four months. In annual terms, CPI jumped from 1.8% to 2.6%, matching the YTD high. The BoJ’s preferred ex-fresh food gauge equally rose by 0.5% M/M to be up 2.2% Y/Y (from 1.8%). More details showed goods and services inflation increasing by 0.8% and 0.2% respectively in November. Only household goods (-0.5% M/M) and entertainment (-0.1% M/M) had a dampening impact on the monthly CPI-print. The Japanese yen rallied from USD/JPY 151.50 to 150 in response to the figures with money markets currently discounting a 15 bps increase in the BoJ’s target rate (currently 0.25%).

French finance minister Armand yesterday noon already hinted that it’s better to have a budget that is not exactly the one they want instead of having no budget at all. PM Barnier than later on the day stressed that they will do everything to bring the country’s budget deficit from this year’s 6% of GDP to about 5% next year. He also announced a first major concession for the far-right RN who threatens the government over the budget bill. A previously planned increase for an electricity tax will no longer be included in the budget. From February, electricity taxes will now decrease by 14% instead of by 9%. While obviously welcomed, RN-president Bardella already said that his party won’t stop there and that other red lines remain. The French left opposition still plans to table a motion of no-confidence as soon as next week..

Source: ACTIONFOREX

In focus today

In the euro area, we will get the full euro area inflation print for November, after the local prints yesterday. In the light of yesterday’s local prints, we expect euro area inflation to come in at 2.2%, a bit lower than the 2.3% indicated beforehand. German CPI inflation increased less than expected to 2.2% y/y (cons: 2.3% y/y) in November from 2.0% in October. Spanish inflation rose to 2.4% y/y in November from 1.8% y/y in October as expected. Core CPI inflation rose less than expected to 2.4% y/y (consensus: 2.6%) from 2.5% y/y in October.

In Sweden, we receive data for Q3 GDP. Yesterday’s NIER confidence data indicated an improvement in economic sentiment, hinting that the October decline in the NIER survey might have been an anomaly. The NIER release, along with production and consumption data, also indicates that the Q3 GDP figures might be more favorable than the GDP indicator suggested (-0.1% q/q, -0.1% y/y). A stronger GDP reading today for Q3 would be a bit of a paradox, as the weaker NIER survey and GDP indicator were contributing factors to the Riksbank’s decision to cut rates by 50bp earlier this month. Additionally, we receive October’s retail sales data. It is noteworthy that sentiment among households and in the retail trade sector continued to improve in yesterday’s NIER survey, which suggests that retail sales will recover from here.

Over the weekend we get Chinese PMIs for November. In the past two months we saw a decent increase in the official PMI manufacturing from NBS rising to 50.1 in October. We expect to see a flat reading reflecting somewhat better activity after the recent round of stimulus. We also look for a small rise in Caixin PMI manufacturing (Monday) coming from 50.3 in October.

Economic and market news

What happened overnight

In Japan, the Tokyo CPI excl. fresh foods came in higher than expected at 2.2% (consensus: 2.1%, prior: 1.8%). The print fuelled expectations for a potential 25bp rate hike in Japan in one of the upcoming meetings. USD/JPY dropped from around 150.3 before the meeting to 149.80 after the release. Since it has strengthened a bit and is now trading around 150. We expect Bank of Japan to deliver a 25bp hike at the December meeting.

What happened yesterday

In the euro area, ECB’s Villeroy said that ECB should keep its options open for a bigger than 25bp rate cut at the next monetary policy meeting. Furthermore, he added that the policy rate could be on a path where it ends below the neutral rate, such that monetary policy once again stimulates growth. We still see the most realistic case that ECB cut the interest rate by 25bp at the December meeting.

EU commissioner Von der Leyen presented a new EU commission. The new Commission leans centre-right and will prioritize competition, defence, and the green transition. However, as the Greens lack a commissioner, there is likely less emphasis on climate issues in favour of competitiveness and industrial policies. A notable change under the second term of President von der Leyen is the redistribution of responsibilities among commissioners, ensuring that basically no single commissioner has full autonomy. Hence, von der Leyen will gain much more influence this time and the picks of commissioners show this already as it was the first time no commissioner was ousted by Parliament.

Von der Leyen also presented that she is establishing a task force to implement the recommendations from the Draghi report, which highlights the focus on competitiveness. Although her statements were somewhat unclear, the substantial aspect is the formation of a team, including some individuals who assisted Draghi in drafting his confidential report. This team will support the Commission’s departments in ensuring the report’s recommendations are executed effectively.

Equities: Global equities were higher yesterday despite the guiding star of the US being out for celebrating Thanksgiving. With the US markets closed, it was a rather quiet session, but this did not deter Europe from posting gains of approximately 0.5%, led by cyclicals. Although macro factors are not the sole focus currently, we received a favourable combination of news, with inflation figures coming in even more benign than anticipated and the Ecofin data surprisingly strong. The US is back for only half a day today following yesterday’s celebrations, yet this has not prevented China from pushing markets higher, while the rest of Asia remains more subdued. It is important to consider the currency effect for Japan again this morning. Both European and US futures are trending upwards this morning.

FI: Yesterday, the OAT-Bund spread saw a 4bp tightening to 82bp following French PM Barnier’s concession to National Rally’s demands, which could allow the 2025 budget to be approved by parliament. EGB yields continued moving lower throughout Thursday, as markets added to ECB rate cut expectations for 2025 following a string of weaker-than-expected core inflation prints out from Germany, Spain and Belgium. The 5y5y EUR inflation swap rate dropped below 2% for the first time since August 2022, highlighting the non-negligible risk that inflation could settle below the target. US was closed for Thanksgiving.

FX: Apart from the politically induced sell-off to the BRL yesterday’s FX session was rather quiet and dominated by the US Thanksgiving holiday season. The USD was the general underperformer while the MXN, NOK and JPY all did well albeit gains were relatively limited.