Stocks Related To Dpk, Ppp Leaders Surge Amid Growing Calls For Yoon’s Resignation

South Korea briefly stole the light from the French political chaos after President Yoon suddenly imposed the martial law yesterday accusing the opposition party – which holds the majority in the parliament – of paralysing his administration, only to lift it a few hours later. The Korean won and the stocks fell, and the volatility in broader Asian markets and cryptocurrencies was higher, but the impact remained limited, the US and European futures are set for a positive open and France could safely come back to the front of the scene with lawmakers preparing to hold a no-confidence vote today and to take Barnier’s government down. You can’t tell that risk by looking at the CAC 40 – which closed 0.26% higher yesterday, and at the French 10-year yield – which eased to the lowest levels since fall over the last week. But the CAC 40 is set to print its biggest performance gap in three decades with the German DAX index. And the spread between the 10-year French and German papers has advanced to the highest levels since the euro debt crisis of a decade ago. This being said, the soft reaction to the French chaos is surprising.

In the US, sentiment remains cheerful and cozy at the start of December. The S&P500 consolidated gains near its ATH level, Nasdaq 100 hit a fresh record while Dow Jones diverged negatively for the second straight session. Data-wise, the latest figures released yesterday showed that the job openings in October rose more than expected by analysts. Optimism rose too, though less than expected. Federal Reserve’s (Fed) Mary Daly said that there is no certainty that the Fed will cut the rates this month, but that, the option remains on the table. Activity on Fed funds futures gives more than 70% chance for another 25bp cut from this month’s FOMC meeting. This week’s jobs, and next week’s inflation data will say the last word. Due today, the ADP report is expected to print lower job additions last month compared to a month ago, while the expectation for Friday’s NFP is around 200K new job additions, with slightly higher unemployment rate and slightly lower wages growth. Soft data will have no difficulty convincing the Fed doves that another 25bp is on its way this month, while a strong-looking set of data could add some suspense to the mix, but eventually, the Fed will certainly cut.

As such, the US dollar bulls prefer to sit on the sidelines, and the US dollar index consolidates around the minor 23.6% Fibonacci retracement on September to November rally. The EURUSD takes the opportunity to catch its breath before another potentially hectic session – depending on what the French politicians decide to do with Barnier and his ambition to reduce the French budget deficit toward the EU targets. We may not see a major selloff in single currency if the French government is taken down, as that possibility must be fully priced in by now. But the pair will remain in the bearish trend below the 1.0672 level – the major 38.2% retracement – justified by the dovish European Central Bank (ECB) expectations amid the doomy economic fundamentals, the messy politics in core European countries and Trump’s tariff threats.

In Japan, the USDJPY continues to test the 100-DMA to the downside, but each attempt ends with a fresh rebound back to the 150 level. While the idea that the Bank of Japan (BoJ) could hike the rates one more time before this year ends keeps the yen bears contained, investors around the world sound unwilling to abandon their carry trade strategy, as even another rate hike in Japan wouldn’t squeeze the rate differential enough to walk out of the yen as a funding currency. That means that the yen’s recovery path won’t be smooth, and it’s good news for the global markets. The last time the yen appreciated significantly – it was during summer – the global indices were heavily hit.

In energy, US crude rallied more than 2.5% to above $70pb on news that the US will impose more restrictions on the Iranian oil exports and on chatter that OPEC is getting closer to delaying its plans to restore production by another 3 months. The decision announcement is due tomorrow. The short-term risks remain tilted to the upside, but delaying production will only prevent global oil glut from getting worse, but won’t reverse it. As such, once the geopolitical news and OPEC decision are absorbed, the bears will be happy to return to the field. Short-term price rallies are interesting top selling opportunities. The bearish trend is valid below the $72.85pb level, the major 38.2% retracement on summer selloff.

Why the Euro Could Soon Recover

Source: Poundsterlinglive

In focus today

The no-confidence vote against French PM Michel Barnier is set to take center stage and is scheduled this afternoon at 16:00 CET. As Marine Le Pen’s party announced they would support the vote of no confidence, the government will most likely collapse this evening. President Macron will have to take on the difficult task of appointing a new prime minister who can survive no confidence votes in the National Assembly. The current stalemate in French politics is likely to persist, with no large reforms to be pushed through.

In the afternoon, both US ADP private sector employment and ISM services data for November are due for release. The former will provide an early sense of what to expect from the pivotal NFP print coming up on Friday, weekly jobless claims have still pointed towards solid labor market conditions. We will also follow if the ISM index shows a similar sharp increase as its PMI counterpart did earlier. Fed chair Powell will participate in an interview today at an event hosted by the NY Times.

In the euro area, focus turns to the release of the final service and composite PMIs for November. The manufacturing PMI this Monday remained exactly unchanged as expected at 45.2. The flash releases triggered significant market reactions, so we are closely monitoring the final release.

Economic and market news

What happened overnight

In China, the Caixin Services PMI for November saw a slight decrease to 51.5 from 52.0 in October, due to slower new business growth and worries about additional tariffs under Trump’s administration.

What happened yesterday

In South Korea, President Yoon Suk Yeol unexpectedly declared martial law in a move targeting “shameless pro-North Korean anti-state forces”. Protesters took to the streets and just hours later President Yoon moved to lift the declaration, abiding to the unanimous vote by parliament against the measure. USD/KRW surged to the highest level in two years, albeit to some degree slid back down as martial law was rescinded. Lawmakers are now calling for President Yoon to either resign or face impeachment.

In the US, October JOLTs job openings came out on the strong side, although with negative revisions. Actual hiring slowed down to 5.3M from 5.6M, but involuntary layoffs also decreased to 1.6M from 1.8M the previous month. The ratio of job openings to unemployed job seekers remained at 1.11, very close to the average level observed over the past 5 months. EUR/USD ticked slightly lower following the release given the big higher job openings.

Federal Reserve policy makers Daly and Kugler both signalled that they believe inflation is set to reach the 2% target rate but avoided giving any guidance on whether they support a rate cut at the Fed’s December meeting, with investors currently pricing just below 20bp for the meeting. We expect a 25bp cut in December.

In Switzerland, inflation for November was in line with expectations. Headline came in at 0.7% y/y (cons: 0.7%, prior: 0.6%) and core at 0.9% y/y (cons: 0.9%, prior: 0.8%). Note the SNB’s projection for Q4 is 1.0%, thus pointing to inflation once again undershooting the SNB’s forecast. EUR/CHF was close to unchanged on the release with markets evenly split between a 25bp and 50bp cut at the next quarterly meeting in December. Key will be continued developments in the real effective CHF as it plays a large role for imported inflation.

Equities: Global equities rose yesterday, with markets in Asia and Europe outperforming those in the US. Once again, cyclicals outperformed defensives, further widening the already historically significant outperformance observed over the last two years. Concurrently, the VIX ticked lower from already low levels. This reflects the benign macro environment and optimism surrounding the new US administration, which is encouraging investors to take on more risks, leading equities to reach new all-time highs. The next significant event that could disrupt the current narrative is the NFP data release on Friday. In the US yesterday, the Dow closed down 0.2%, the S&P 500 was up 0.1%, the Nasdaq increased by 0.4%, and the Russell 2000 decreased by 0.7%. Most Asian markets are higher this morning, except for South Korea, which is bucking the trend. US futures pointing higher this morning, while Europe is a more mixed picture.

FI: There were modest movements in global bond yields yesterday despite the political uncertainty in France and South Korea and comments from various Fed officials that the Federal Reserve is still looking to cut rates, but they gave no clear indication for the upcoming meeting in December about whether they would cut rates. Hence, there is significant focus on the labour market data on Friday as well as comments from Fed chairman Powell later this week.

FX: EUR/USD ended the day slightly north of the 1.05 mark following a slight topside surprise to the JOLTS data. EUR/CHF was close to unchanged following a rather uneventful November inflation print, which came in in line with expectations. Slightly higher oil prices and an underperforming Norwegian fixed income space have delivered some support to the NOK in the early part of this week’s trading with EUR/NOK now back close to 11.60 and NOK/SEK re-approaching parity. USD/CNY has continued to move higher driven by both renewed divergence in monetary policy expectations between US and China as well as anticipation of US tariff hikes.

A secure supply of critical raw materials (CRMs) is essential for the stability of entire economic value chains. These CRMs have a wide range of commercial and military applications, extending well beyond renewable energies. They are crucial in everything from mobile phones and computer hard drives, to batteries for electric vehicles, as well as precision-guided missiles and high-tech ammunition.

China is the world’s largest producer of lithium batteries for electric mobility and commands a 60 percent share of the global electric vehicle (EV) market. By strategically dominating the mining, metallurgy and material science sectors – often referred to as the “three Ms” – China dominates much of the world’s clean-tech supply chains.

In contrast to China, the European Union and the United States are heavily dependent on imports of CRMs from abroad, and thus on international commodity markets and access to foreign mines. Currently, China accounts for 98 percent of the EU’s supply of rare earth elements (REEs) and around 60 percent of its CRMs. 

Rising demand for critical raw materials

In 2017, a World Bank study explicitly warned that the global energy transition and climate protection policies would demand significantly greater use of CRMs than previously forecasted. This was confirmed by the United Nations Environment Programme, which stated that achieving the 2-degree Celsius target of global climate protection policy would require approximately 600 million tons more metallic raw materials than a 6-degree Celsius scenario by 2050.

The International Energy Agency has forecasted that global demand for CRMs could increase up to 40 times between 2020 and 2040. Specifically, for rare earths used in magnets, demand may increase fivefold by 2040. To achieve net-zero emissions targets, the world might need as much new copper as has been produced in all recorded history.

Although there are generally no severe geological shortages of CRMs, concrete challenges in extraction, processing or recycling arise due to numerous factors. These include instability in producing countries, restrictive environmental regulations, poor governance and resource nationalism at a time when the global demand and access to a stable supply of CRMs will further intensify in the next decades. 

Mining projects and plants in the U.S. and the EU often face rocketing investment needs and budget overruns, leading to delays, missed production targets and insufficient commercial profitability. These projects must also contend with the challenge of competing against low, subsidized Chinese prices. Any goods made using critical materials sourced in North America or Europe inevitably see an increase in the cost of the final products, whether in renewable energy sectors or in manufacturing high-tech weaponry. 

For example, rare earth magnets in the U.S. are about 50 percent more expensive than their Chinese counterparts. Moreover, even new reprocessing initiatives by American or European companies depend on Chinese technology, to which Beijing can restrict access. Indeed, last year, China banned exports of rare earth processing technology.

Efforts to enhance supply security

It was not until 2017 that the European Commission, along with member states including Germany, began to lay out industrial strategies to address the challenges of raw material supplies for electromobility and to start construction of newly planned battery gigafactories. Currently, the 27 EU countries can only produce 9 percent of the bloc’s critical raw material needs. 

In 2020, Europe accounted for just 5 percent of global mining, making it the only region in the world where the industry is declining. Global demand for lithium is expected to increase eighteenfold by 2030, while demand for REEs and cobalt could rise tenfold and fifteenfold respectively by 2030, and cobalt even sixtyfold by 2050. 

In 2010, the EU and Germany introduced a “three-pillar strategy” for their raw materials policy, focusing on utilizing domestic raw materials, importing primary raw materials that are not available in Germany, and reducing dependence on primary materials through recycling, substitution and resource efficiency. Concerns about the EU’s raw material supply security are mirrored in the commission’s evolving list of CRMs, which has steadily expanded from 14 items in 2011 to 34 in 2023. 

Still waiting for peak coal

Generating clean energy is the easy part

In March 2022, the EU launched the Critical Raw Materials Act (CRMA), addressing numerous challenges in securing raw material supplies and setting broad objectives to enhance self-sufficiency by 2030. Goals include increasing the EU’s raw material extraction to at least 10 percent of its annual consumption, boosting processing capacity to 40 percent (a significant rise from the previous 0-20 percent), ensuring 15 percent of consumption through recycling, and limiting imports of any strategic raw material from a single third country to a maximum of 65 percent of annual consumption.

The CRMA also aims to reduce administrative burdens and shorten permitting procedures for CRM projects in the EU, while still ensuring a high level of social and environmental protection. Selected strategic projects will receive financial support (as in Spain, Portugal, Serbia, Sweden and Norway) and provide shorter approval periods (24 months for promotional projects and 12 months for processing and recycling projects).

Like the EU, the U.S. has supported domestic mining and similar initiatives in other G7 countries with democratic, market-based economies. The Mountain Pass mine in California, once the world’s largest rare earth mine, resumed operations in 2012 and now contributes 15 percent to global rare earth production.

Over the past four years, the Pentagon has invested approximately $1 billion in global rare earth projects through its Defense Production Act. Additionally, the National Defense Stockpile program maintains CRM inventories in preparation for potential conflicts with China or Russia. The Minerals Security Partnership (MSP) enhances cooperation, information exchange and joint financing for stable CRM supplies among the U.S., EU and 13 other countries. 

The U.S. Inflation Reduction Act (IRA) and the CHIPS & Science Act also promote domestic and friendshoring projects of more resilient supply chains for CRMs. The IRA and the Foreign Entity of Concern (FEOC) rules promote cooperation with partners to reduce their dependence on China. The FEOC rules mandate that to qualify for IRA tax credits, Chinese state-owned companies must not control more than 25 percent of a given operation in a non-FEOC country.

Source: GIS

The AUD/JPY cross dropped to its lowest level since September 18 during the Asian session on Wednesday as softer Australian GDP print lifted bets for an early interest rate cut by the Reserve Bank of Australia (RBA). Moreover, expectations that the Bank of Japan (BoJ) will hike interest rates again in December contribute to the Japanese Yen's (JPY) relative outperformance and exert additional pressure on the currency pair. 

Spot prices, however, managed to rebound over 70 pips from sub-96.00 levels and currently trade around 96.70, down 0.20% for the day. The Relative Strength Index (RSI) on the daily chart is flashing slightly oversold conditions and turns out to be a key factor that prompts some short-covering around the AUD/JPY cross. That said, the technical setup warrants caution before positioning for any further gains.

Last week's breakdown below the 98.00 round figure was seen as a key trigger for bearish traders. Furthermore, oscillators on the daily chart are holding deep in negative territory. This, in turn, suggests that any subsequent move up could be seen as a selling opportunity ahead of the 97.00 mark and cap the AUD/JPY cross near the 97.50 horizontal barrier. The latter might now act as a key pivotal point for short-term traders. 

On the flip side, the 96.00 round figure might continue to offer some support. A convincing break and acceptance below the said handle will reaffirm the negative outlook and pave the way for deeper losses. The AUD/JPY cross might then slide to the next relevant support near the 95.30 region en route to the 95.00 psychological mark. The downfall could eventually drag spot prices to the 94.45-94.40 horizontal support and the 94.00 mark.

Source: FXSTREET

The GBP/USD pair trades in positive territory for the second consecutive day around 1.2690 during the early European session on Wednesday. However, the potential upside for GBP/USD seems limited as the expectation of less aggressive interest rate cut by the US Federal Reserve (Fed) and the concerns about US President-elect Donald Trump's tariffs policies could provide some support to the Greenback. Investors await Federal Reserve Chair Jerome Powell's speech for cues about the interest rate outlook.

The bearish outlook of GBP/USD remains in play as the major pair holds below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Furthermore, the 14-day Relative Strength Index (RSI) remains capped below the midline around 45.35, suggesting that the further downside cannot be ruled out. 

The 1.2600 psychological level acts as an initial support level for the major pair. Further south, the next downside target to watch is 1.2467, the lower limit of the Bollinger Band. A breach of this level could push prices lower toward 1.2331, the low of April 23. 

In the bullish case, the first resistance level is seen at 1.2750, the high of November 29. Sustained bullish momentum could see a rally to 1.2875, the 100-day EMA. The additional upside filter emerges at 1.2920, the upper boundary of the Bollinger Band.  

Source: FXSTREET