Eurozone Sovereign Debt Crisis? ECB Warns of Fiscal and Growth Risks

Economic

Summary:

The ECB warns of mounting eurozone sovereign debt risks in its latest review, citing high debt levels, fiscal slippage, and weak growth.

The European Central Bank (ECB) has raised the alarm over a potential resurgence of eurozone sovereign debt vulnerabilities, as elevated debt levels, sluggish growth, and fiscal slippage converge into a dangerous cocktail.

In its latest November 2024's Financial Stability Review, the ECB warns that these factors, coupled with geopolitical tensions and policy uncertainty, could reignite fears of a sovereign debt crisis akin to the turmoil a decade ago.

“Elevated debt levels and high budget deficits, coupled with weak long-term growth potential, increase the risk that fiscal slippage will reignite market concerns over sovereign debt sustainability,” the monetary institution stated.

Rising debt costs heighten financial stability risks

The ECB warns that the era of cheap borrowing is firmly over.

Maturing debt is now being rolled over at significantly higher interest rates, pushing up sovereign debt service costs.

This dynamic poses particular risks for high-debt countries where limited fiscal space could leave governments vulnerable to sudden market shocks.

Geopolitical tensions exacerbate the problem. Energy subsidies and other fiscal measures aimed at mitigating global disruptions are further stretching budgets.

“Sovereign vulnerabilities are deepening. Despite recent reductions in debt-to-GDP ratios, fiscal challenges persist in several euro area countries, exacerbated by structural issues such as weak potential growth and heightened policy uncertainty.” ECB vice-president Louis de Guindos remarked.

The numbers don’t lie

Debt levels across the eurozone remain a glaring concern, with significant imbalances between member states highlighting the bloc’s underlying fragility.

While the eurozone’s average debt-to-GDP ratio stands at 88.1%, as per the latest Eurostat data, this figure conceals stark contrasts.

Greece leads with a towering debt ratio of 163.6%, followed by Italy at 137% and France at 112.2%. Meanwhile, fiscally disciplined countries like Germany and the Netherlands boast much lower ratios, at 61.9% and 43.2%, respectively.

Looking ahead, the outlook for debt sustainability is increasingly worrying in some of the eurozone’s largest economies. While the broader region’s government debt levels are projected to remain relatively stable, certain member states face a dangerous upward trajectory.

The International Monetary Fund (IMF) in its latest October Fiscal Monitor forecasts that by 2029, France’s debt-to-GDP ratio will climb from 112% to 124.1%, while Italy’s will surge to a staggering 142.3%, up from 136.9%. Belgium, too, is expected to see its debt rise sharply, from 105% to 119%.

These figures underscore growing vulnerabilities that could leave heavily indebted nations struggling to manage fiscal pressures in an environment of higher interest rates and subdued economic growth. Eurozone Sovereign Debt Crisis? ECB Warns of Fiscal and Growth Risks_1

Eurozone Sovereign Debt Crisis? ECB Warns of Fiscal and Growth Risks_1

A déjà vu for markets?

The markets, so far, have remained relatively calm, with volatility spikes proving short-lived. However, underlying vulnerabilities suggest that calm may not last. Fiscal slippage in high-debt countries could reignite market concerns, leading to widening bond spreads reminiscent of the eurozone debt crisis a decade ago.

The ECB acknowledges that "heightened policy and geopolitical uncertainty, weak fiscal fundamentals, and sluggish trend growth raise concerns about the sustainability of sovereign debt in some euro area countries."

"While financial markets have proved resilient so far, there is no room for complacency. Underlying vulnerabilities make equity and corporate credit markets prone to further volatility," Frankfurt warns.

The corporate domino effect

The corporate sector is not immune to sovereign vulnerabilities. Rising sovereign bond yields could spill over into the private sector, driving up funding costs for companies.

This would be particularly damaging for small and medium-sized enterprises (SMEs), which are already under pressure from high borrowing costs and weak growth.

"High borrowing costs and weak growth prospects continue to weigh on corporate balance sheets, with euro area firms reporting a decline in profits due to high interest payments," the ECB stated.

Banking resilience: A silver lining?

Unlike during the previous debt crisis, eurozone banks are better capitalised and more profitable, providing a buffer against potential sovereign and corporate credit shocks.

However, the interconnectedness of sovereign and bank risks—known as the “doom loop”—remains a concern. A deterioration in sovereign creditworthiness could erode bank balance sheets, potentially triggering a broader financial instability.

The ECB advises regulators to keep banks’ capital buffers strong and uphold rules ensuring borrowers can repay loans, aiming to maintain financial stability and prevent risky lending.

An old crisis, new risks

The ECB’s warning is clear: the eurozone is not out of the woods. Elevated debt, weak growth, and fiscal slippage are laying the groundwork for potential market turbulence.

For now, the message from Frankfurt is unequivocal: vigilance is paramount, and complacency is not an option.

Without decisive action to address these vulnerabilities, the region risks sliding into a new sovereign debt crisis.

Source: Euronews

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Warren Takunda

Stocks

London stocks were set to rise at the open on Thursday as investors mulled third-quarter results released overnight by US tech giant Nvidia.

The FTSE 100 was called to open around 40 points higher.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "Nvidia announced another very strong quarter after the bell. The company surpassed its own revenue forecast by around $2bn (again!) and printed a sales number of $35.1bn. That’s around $5bn more than last quarter’s number and almost the double of the amount earned during the same period a year ago.

"The company printed a total profit of an eye-watering $19.3bn - that’s also around $2bn more than pencilled in by analysts. And it made a revenue forecast of $37.5bn for the current quarter. That’s $2bn more than the actual revenue - as it has been the case for the past few quarters - but only slightly above the consensus of $37bn."

Shares in Nvidia fell after hours, however. Ozkardeskaya highlighted two red flags in the results.

"1. The company’s gross margin slightly fell last quarter from 75.1% to 74.6%. This number is still around 20 percentage points above AMD’s profit margin and more than double Intel’s BUT the switch to the now-famous Blackwell chip - and the manufacturing challenges, there - has been costlier than thought and took a toll on the profit margin. And Nvidia expects its gross margin to dip to 73% before rebounding back to mid-70s as it reaches large-scale production.

“2. Happily, demand for Blackwell chips is expected to exceed supply for a few more quarters but the composition of Nvidia’s customer book worries. Big Tech companies make up to 50% of revenues - up from 45% a quarter earlier. And these companies will be done buying chips at large-scale at some point. And come that day, Nvidia must find new clients. The problem is that companies other than Big Tech certainly don’t have the same means to make Nvidia’s bread and butter when competition proposes more affordable AI chips. Hence, competition and market share will become a challenge."

In UK corporate news, JD Sports Fashion said it expected full-year profits to be at the lower end of its forecast range after a "volatile" trading environment in October due to bigger discounts and milder weather, which saw third quarter like-for-like sales fall by 0.3%.

The sportswear retailer forecast profit before tax and adjusting items of £955m to £1.035bn.

Frasers Group urged shareholders to remove Boohoo's executive chairman Mahmud Kamani, to appoint Mike Ashley and James Lennon to the Boohoo board.

In response, Boohoo announced the appointment of Tim Morris as independent chair, with Kamani transitioning to executive vice chair and committing to governance measures including limiting his influence over board decisions and operations.

Frasers, which owns just over 28% of Boohoo, requisitioned a meeting for the appointment of Ashley and Lennon for 20 December, and urged shareholders to remove Kamani at a separate shareholder meeting.

Postal and courier giant International Distribution Services returned to an adjusted operating profit in the first half, as revenues grew across the group and losses at Royal Mail shrank.

The company said that Royal Mail was on track to return to a profit for the full year, though the outlook for parcel services division GLS remains uncertain with the macro environment across Europe still “challenging”.

Source: Sharecast

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SAXO

Economic

Macro data and headlines:

France’s National Rally leader Le Pen threatens to bring down the French government on budget dispute as she weighs in against PM Michel Barnier’s taxation increases.

Fed Governor Bowman, who dissented at the September Fed decision to cut rates by 50bps, remained hawkish calling for a cautious approach, noting how she sees greater risks to the price stability mandate. Governor Cook largely kept options open in her speech, noting policy is not on a pre-set path.

Geopolitical enthusiasm on reports that Russian President Putin is open to talking about a Ukraine ceasefire with US President-elect Trump. However, risk off was later seen in wake of Bloomberg reports that Ukraine fired a UK storm shadow missile into Russia.

Equities:

US: Markets closed mixed on Wednesday, with the S&P 500 flat and the Nasdaq 100 dipping 0.1%. Nvidia's earnings exceeded expectations, reporting a 94% YoY revenue increase to $35.08 billion and net income nearly doubling to $19.3 billion. Despite these strong results, its shares fell 1.8% in after-hours trading due to tempered Q4 guidance. (read more here:

Why Nvidias Story is Far From Over) Target tumbled 21% after missing earnings expectations, while Snowflake rose 19% after hours on better-than-expected revenue growth and positive guidance.

Asia: Most Asian markets declined as Nvidia's mixed signals triggered cautious sentiment, with Japan's Nikkei 225 down 0.7% and TSMC losing 1%. Some Nvidia suppliers, such as SK Hynix and Samsung, gained on news of advanced chip production. Chinese markets weakened as the PBoC held rates steady, disappointing stimulus expectations. Geopolitical tensions around Ukraine and Russia further dampened sentiment.

Europe: The Stoxx 50 fell 0.5%, while the Stoxx 600 edged down 0.1% amid escalating geopolitical tensions as Ukraine fired missiles into Russian territory. Banks and autos led losses, with key players like Santander and Mercedes-Benz down over 1%. ASML dropped 1.5% ahead of Nvidia’s earnings, as investors brace for AI demand guidance.

Volatility

Volatility increased notably, with the VIX rising 4.95% to 17.16 and the VIX1D climbing over 64% to 19.11, reflecting elevated short-term risks. The VVIX spiked 4.83 points to 102.2, signaling heightened hedging activity. Nvidia's implied move remains significant at ±8%, driving market-wide volatility expectations. For broader indices, expected daily moves are 0.87% for the S&P 500 and 1.46% for the Nasdaq 100. Most active options included MicroStrategy, Mara Holdings due to continued interest in crypto related stocks and Target, reflecting post-earnings momentum. Economic data releases today, including jobless claims and home sales, could further shape sentiment.

Fixed Income

European sovereign yields rose modestly as UK inflation unexpectedly accelerated in October, pushing long-dated gilts yields higher. The German curve steepened slightly, with 10-year Bund yields ending the day at 2.35%, while 10-year gilt yields closed at 4.47%. Markets held steady on ECB rate-cut expectations despite strong euro-zone wage growth. In the US, Treasuries weakened across the curve after a poorly received 20-year bond auction, with 10-year Treasury yields finishing at 4.44%, erasing earlier risk-off gains tied to geopolitical tensions. Overall, both European and US bonds faced selling pressure amid weaker auction results and inflation concerns.

Commodities

Gold has retraced half the recent 253-dollar correction, reaching its 50-DMA at USD 2,661 as geopolitical concerns continue to feed fresh momentum. Silver’s so-far sluggish recovery highlights this concern as the main driver, with limited support from industrial metals, which continue to be weighed down by the tariff threat to demand. Crude remains stuck near the range low after US inventories exceeded expectations, and concerns persist about a surplus next year from slowing Chinese demand and high production. US natural gas surged to a ten-month high at USD 3.335 due to incoming cold weather and exports lifting demand, while European prices trade near a high for the year on winter supply concerns. Arabica coffee futures rose to a 13-year high at USD 2.925 per pound due to supply concerns in Brazil, the top producer, as it faces reduced arabica output this season due to drought.

Currencies

The US dollar rebounded broadly yesterday, though largely continues to churn within a range against the other major currencies. USDJPY retreated sharply in the Asian session overnight on rhetoric from the Bank of Japan, as governor Ueda said that the bank is closely watching the impact of FX on the economy and inflation, though he refused to provide guidance for the December BoJ meeting, saying that there would be a lot of further data available before that meeting. This will likely enhance market reactivity to the Japan CPI figures up tomorrow in Asia (late tonight European time). Yesterday’s hotter than expected UK CPI failed to sustain a sterling rally, suggesting a concern that sustained high BoE rates are not necessarily supportive of the currency if the UK is suffering mild stagflation.

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Warren Takunda

Economic

Stocks

Asian shares were mostly lower on Thursday as regional markets tried to digest the strong and highly anticipated profit report from Nvidia.

Nvidia again topped analysts’ expectations. But technology shares in Tokyo declined as they had already risen earlier in anticipation. In after-hours trading, Nvidia’s shares lost 2.5%.

Japan’s benchmark Nikkei 225 shed 0.9% to 38,025.66, as shares in semiconductor equipment maker Advantest Corp. dropped 2.6%. Chip maker Tokyo Electron shed 0.5%.

Australia’s S&P/ASX 200 slipped less than 0.1% to 8,323.00. South Korea’s Kospi rose 0.5% to 2,493.73. Hong Kong’s Hang Seng dipped 0.2% to 19,667.42, while the Shanghai Composite rose less than 0.1% to 3,368.80.

Stephen Innes, managing partner at SPI Asset Management, noted the market reaction to Nvidia’s results was muted, partly because of the positioning that happened before the release. Its long-term prospects remain complex, he added.

“The bigger question remains: where exactly is the bar for Nvidia now?” Innes said. “This push to integrate AI into every corner of the corporate world risks backfiring when the technology is forced into roles it isn’t fully equipped to handle.”

Trading in the options market suggested Nvidia’s profit report was the most anticipated event left in 2024, more than even the Federal Reserve’s upcoming meeting on interest rates, according to Barclays Capital.

Nvidia has grown into a nearly $3.6 trillion behemoth because of nearly insatiable demand for its chips used in artificial-intelligence technology.

It’s grown so fast, with its stock nearly tripling for the year so far, that pressure has grown for it to show it can keep leapfrogging past analysts’ already high expectations.

On Wall Street, the S&P 500 finished the day virtually unchanged, at 5,917.11 after coming back from a loss of 1%. The Dow Jones Industrial Average eked out a 0.3% gain, to 43,408.47, and the Nasdaq composite slipped 0.1% to 18,966.14.

AdvertisementU.S. retailer Target’s 21.4% tumble followed a report showing weaker profit and revenue for the latest quarter than analysts expected. The retailer also gave a forecast for profit in the upcoming holiday season that was below analysts’ estimates.

Rival Walmart reported another quarter of stellar sales Tuesday and released optimistic projections for the holiday season.

Hints about how U.S. consumers are doing are under particular scrutiny, since their spending will help determine if the U.S. economy will continue growing and avoid a recession. Shoppers are contending with high prices across the economy and still-high interest rates.

“I find the Target and Walmart earnings very interesting because we typically see a waterfall type effect when the economy begins to struggle, with shoppers trading down from stores such as Target to Walmart,” said JJ Kinahan, CEO of IG North America.

Comcast rose 1.6% after announcing the spinoff of USA, CNBC, MSNBC and other cable television networks into a standalone company that will have its own stock trading on the market.

AdvertisementAll told, the S&P 500 inched up by 0.13, or less than 0.1%, to 5,917.11. The Dow Jones Industrial Average added 139.53 points to 43,408.47, and the Nasdaq composite slipped 21.32 to 18,966.14.

Financial markets are also still absorbing the impacts of Donald Trump’s victory in the presidential election, including expectations that Trump’s policies will drive faster U.S. economic growth and inflation.

Treasury yields held relatively steady in the bond market. The 10-year yield edged up to 4.41% from 4.40% late Tuesday. It has been generally rising from less than 3.70% in September.

In energy trading, benchmark U.S. crude gained 12 cents to $68.87 a barrel. Brent crude, the international standard, added 12 cents to $72.93 a barrel.

In currency trading, the U.S. dollar fell to 155.09 Japanese yen from 155.31 yen. The euro cost $1.0552, down from $1.0546.

Source: AP

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Danske Bank

Economic

In focus today

Today, in the euro area we receive data on consumer confidence for November. We have seen a strong upward trend the past year, which bodes well for consumption next year if it continues.

In Sweden, we have a speech by Riksbank vice governor Per Jansson at 14:45 about the economic situation. According to the Minutes, Jansson cited a slower-than-anticipated economic recovery as his reason for supporting a 50bp rate cut. He concluded that overall inflation risk is trending downward, although he balanced that by highlighting two upside risks: the krona and food prices, which in the worst case could delay rate cuts or even justify hikes.

In the US, we receive initial jobless claims and the Philly Fed Business index for November, which measures growth in the manufacturing sector, where consensus suggests 8.0.

Several central bank speeches from both ECB and Federal Reserve again today including Knot, Holzman and Lane, where the market will look for clues on monetary policy ahead of December announcements.

Overnight, the Japanese Statistics Bureau publishes inflation data for October. Tokyo data indicates, inflation declined further, but price momentum rhymed with 2% annual inflation. Consensus sees 2.2% with September inflation of 2.4%. This will be the last nationwide print ahead of the December BoJ meeting.

Economic and market news

What happened overnight

In the US, Yesterday’s auction of USD 16bn in the 20Y was very weak with a very high tail and low demand from direct bidders. However, the 20Y segment on the US Treasury curve usually attracts low demand as it is a new segment on the yield curve (was introduced in 2020) similar to what we see on the German curve, where the 15Y-20Y segment also attracts low demand and have to offer an extra premium to investors. Hence, it should not have significant impact on the long end of the Treasury curve.

What happened yesterday

In the euro area, negotiated wage growth increased to 5.4% y/y in Q3 from 3.5% in Q2, influenced by seasonal factors such as bonuses and recent increase in German special payments. Despite this volatility, average negotiated wages have now increased 4.6% y/y, up from 4.4% y/y in 2023, indicating persistently strong wage trends. This sustained wage growth is expected to continue influencing services inflation. However, the ECB’s focus has shifted from inflation concerns to growth, lessening the impact of the data on future policy rate decisions.

In the UK, October’s inflation figures surpassed expectations with headline CPI at 2.3% y/y (cons: 2.2%, prior: 1.7%), and core CPI at 3.3% y/y (cons: 3.1%, prior: 3.2%). The rise in the headline is primarily due to quarterly adjustments in household energy bills. Given this, we therefore caution reading too much into this print given the significant impact of energy costs.

Equities: Global equities were marginally lower yesterday, and it was definitely not the Trump trades outperforming. Health care is finally showing some defensive characteristics after having faced several challenging weeks following the elections. Materials also outperformed on a negative day, a sector which has also been challenged over the last couple of weeks. European stocks once again started the day in the green before ending in the red. This illustrates quite well the investor scepticism, fear, and uncertainty related to geopolitics, German politics, struggling manufacturing sectors, and challenging structural outlooks related to Europe. What seems to be missing is the belief in potential upside surprises in Europe, despite economic surprises currently being positive for the region. In the US yesterday, Dow +0.3%, S&P 500 +0.00%, Nasdaq -0.1%, and Russell 2000 +0.03%. Asian markets are mixed this morning, with South Korea standing out once again, this morning on the positive side. European futures are higher – let’s see if the strength can continue throughout the cash session. US futures are slightly lower but without a massive impact following the Nvidia earnings in the after-hours yesterday.

FI: Geopolitics continued to add downward pressure on global rates through yesterday’s session. The EUR swap curve rose modestly across tenors during the first part of the session, but the move faded quickly as news of another Ukrainian attack on Russian soil reached the wire. The EUR swap curve ended the day marginally higher across tenors, while the Bund ASW-spread move slightly higher to 2-week high of 2.5bp.

FX: USD and CAD gained the most yesterday and NOK and SEK lost out on another relatively quiet day for the FX market. EUR/USD traded in the 1.05-1.06 range, EUR/SEK rose above 11.60 and EUR/NOK climbed towards 11.70.

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Justin

Economic

Central Bank

Markets

Geopolitical developments keep hijacking headlines. Risk sentiment improved at the start of yesterday’s trading session on talk that Russian president Putin would be open to talks on a ceasefire deal in Ukraine with the US. The optimism quickly evaporated after the Biden administration decided to give Ukraine antipersonnel mines and after Ukraine deployed first long-term missiles from the UK (Storm Shadow) days after first such arms from the US (ATACMS).

Key European equity benchmarks closed up to 0.50% lower. US stocks treaded water going into Nvidia earnings which brought a tepid reaction. While still beating consensus, they didn’t top highest estimates triggering some pullback in the share in after-trading after the recent run-up. Eco data included higher-than-expected October UK CPI figures and record high EMU wage growth (Q3: +5.4% Y/Y) which failed to really leave a (negative) mark on bond trading.

Daily changes on the German curve were limited to +- 1bp. UK yields were unchanged apart from an underperformance of the (very) long end of the curve: 10y +2.7bps, 30y +5.2 bps). The US yield curve bear flattened with increases between +1.6 bps (30-yr) and +3.4 bps (2-yr) following some hawkish Fed comments. EUR/USD oscillates between 1.05 and 1.06.

US money markets now put the probability of a 25 bps Fed rate cut in December at only 50%. The latest repositioning started last week after Fed Chair Powell said that the economy is not sending any signals that de Fed needs to be in a hurry to lower rates. Boston Fed Collins yesterday suggested that some additional policy easing is needed as policy currently remains at least somewhat restrictive but that the final destination is uncertain. Policy makers should proceed carefully though.

“The policy adjustments made so far enable the FOMC to be careful and deliberate going forward, taking the time to holistically assess implications of the available data for the outlook and the associated balance of risks” Washington-based Fed governor Bowman – who dissented in September in favour of a smaller 25 bps rate cut – sounded equally cautious, citing risks of prematurely fueling demand and reigniting inflationary pressures. Interestingly, she says that we may be closer to a neutral policy stance than we currently think.

Fed governor Cook also didn’t want to frontrun the outcome of the December meeting, hinting that she is ready to respond to a changing outlook. NY Fed Williams was more neutral. His 2025 outlook is one of still solid growth (2.5%), a sideways moving labour market (4%-4.25% unemployment rate) and a continuation of the disinflation process (2.25% for the full year). In this context, he argues that it is appropriate to bring the Fed funds rate down closer to more normal or neutral levels. Today’s eco agenda again fails to inspire, leaving space for more choppy consolidation trading in the run-up to tomorrow’s PMI surveys.

News & Views

Japan’s public broadcaster NHK said the government is considering a new stimulus package worth JPY 13.9tn, or about $90bn, aimed at mitigating the impact of rising prices on households. The package would also contain around JPY 8tn for government investment and lending as well as local government spending, raising the total size to JPY 21.9tn to top last year’s JPY 21.8tn fiscal booster. Japan’s ruling coalition yesterday agreed with a key opposition party on the draft of the package. While these kind of supplementary budgets are not unusual in Japan, their size seem to be ever-increasing. They are also largely debt-funded. The IMF earlier this month warned Japan to fund additional spending plans within its budget rather than issue debt. It urged Japan to get its fiscal house in order as the central bank began raising interest rates. The Japanese yen this morning oscillates around USD/JPY 155.

Advisers to the Chinese government are recommending the country to stick to a 5% growth target for 2025, Reuters reported. Such growth ambitions match those for this year. The advisers push for stronger fiscal stimulus to offset the impact of potential US tariff hikes on Chinese exports. One of them said the budget deficit should “definitely exceed” this year’s planned 3% level of GDP. Another was more conservative, calling solely relying on fiscal stimulus not sustainable in the long run if China does not go ahead with much-needed reforms to address structural imbalances. The advisers will submit their proposals to next month’s annual Central Economic Work Conference, where leaders discuss policies and goals for next year. The growth target will be officially announced at an annual parliament meeting in March.

Source: ACTIONFOREX

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ACY

Economic

Forex

EUR: Fragile Stability Amid Geopolitical and Economic Uncertainty

The Euro (EUR) has been influenced heavily by geopolitical and economic uncertainties. Key developments, such as Ukrainian missile strikes targeting Russia, have dampened market sentiment, creating a risk-averse environment that has amplified the divergence between German Bund and US Treasury yields. This growing gap underscores differing economic trajectories and monetary policy outlooks between Europe and the United States.

DAX Index (Purple) – US10Y (Blue)

The European Central Bank (ECB) faces a complex balancing act. Policymakers remain divided on how to address inflation without exacerbating economic vulnerabilities. Temporary base effects—most notably in Germany—are pushing inflation metrics higher, creating an illusion of persistent price pressures. However, structural challenges, including factory closures and sluggish wage growth, suggest that long-term inflation risks may be overstated.

In the near term, investors are shifting focus to Friday’s flash Purchasing Managers’ Index (PMI) releases, which will provide insights into economic activity across the eurozone. Nonetheless, geopolitical developments, particularly those involving Russia and Ukraine, are likely to overshadow economic indicators and play a pivotal role in shaping the EUR's trajectory.

EUR PMIs

GBP: Budget Implications Heighten Inflation and Stagflation Concerns

The British Pound (GBP) faces a challenging outlook, as recent UK inflation data for October reveals lingering vulnerabilities. While September's Consumer Price Index (CPI) dip was largely attributed to energy price base effects, October's figures underscore persistent inflationary pressures, particularly in services. These trends align with the Bank of England’s (BoE) recent policy adjustments and lower growth forecasts for the services sector.

UK CPI

The upcoming fiscal budget introduces additional complexities. Measures such as Value Added Tax (VAT) hikes and energy cost caps are expected to marginally increase inflation. However, these adjustments are unlikely to signal robust demand growth, as consumer and business activity remain subdued.

Concerns about stagflation are also intensifying. Retailers have issued warnings about job cuts and rising operational costs, painting a bleak picture for the UK’s economic trajectory. These factors could erode investor confidence in the GBP, especially as money markets recalibrate expectations, dealing back on the likelihood of significant BoE easing.

JPY: Safe-Haven Status Reinforced Amid Escalation Fears

The Japanese Yen (JPY) has strengthened, bolstered by its safe-haven appeal amid rising geopolitical tensions. Reports of Ukraine deploying US-made missiles to strike Russian targets have heightened fears of a broader conflict. While both sides appear to be managing the situation to avoid a full-scale escalation, the uncertainty has triggered risk aversion, driving demand for the JPY.

USDJPY H1

Investor sentiment remains supportive of the Yen, with positioning data indicating consistent inflows during periods of heightened geopolitical risk. The currency has even gained against the US Dollar (USD) in episodes of risk-off market behaviour.

Looking ahead, the Yen’s trajectory will largely depend on the evolving dynamics of the Russia-Ukraine conflict. Should tensions escalate further, the JPY is poised to benefit as investors continue to seek a stable refuge. Markets will closely monitor developments, as any significant geopolitical shifts could reinforce the Yen’s safe-haven status in the months to come.

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Eurozone Sovereign Debt Crisis? ECB Warns of Fiscal and Growth Risks

Rising debt costs heighten financial stability risks

The numbers don’t lie

A déjà vu for markets?

The corporate domino effect

Banking resilience: A silver lining?

An old crisis, new risks

Source: Euronews

London Pre-Open: Stocks Seen Up as Investors Mull Nvidia Results

Source: Sharecast

Global Market Quick Take: Europe – 21 November 2024

Macro data and headlines:

Equities:

Volatility

Fixed Income

Commodities

Currencies

Stock Market Today: Asian Shares Mostly Slip Despite Nvidia’s Solid Earnings Report

Source: AP

Euro Area Consumer Confidence Out Today

In focus today

Economic and market news

US Money Markets Now Put Probability Of 25 bps Fed Rate Cut In December At Only 50%

Markets

News & Views

Source: ACTIONFOREX

EUR, GBP, and JPY Navigate Geopolitical and Economic Crosswinds

EUR: Fragile Stability Amid Geopolitical and Economic Uncertainty

DAX Index (Purple) – US10Y (Blue)

EUR PMIs

GBP: Budget Implications Heighten Inflation and Stagflation Concerns

UK CPI

JPY: Safe-Haven Status Reinforced Amid Escalation Fears

USDJPY H1

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