NEWS
(Bloomberg) -- Bank of Japan Governor Kazuo Ueda said interest-rate hikes are “nearing” as inflation and economic trends develop in line with the central bank’s forecasts, without explicitly supporting an increase in December.
Solar imports from Southeast Asia are being unfairly sold in the US below their production costs, according to initial findings of a Commerce Department review that laid out duties of as much as 271% to counteract the practice.
US-MEXICO TRADE (BBG): Mexico’s President Says She’s Sure Country Can Avoid US Tariffs
Mexico’s President Claudia Sheinbaum is confident that her country can reach a deal with the US to avoid the 25% tariff threatened by US President-elect Donald Trump, she told reporters in Mexico City.
US POLITICS (WPT): Texas Is Gearing Up in a Big Way for Trump’s Mass Deportation Campaign
While Donald Trump's opponents denounce the president-elect's planned "mass deportations" and border crackdown, this state's Republican leaders are vying to make Texas the launching pad.
Canada's economy could slip into recession if U.S. President-Elect Donald Trump goes ahead with the 25% tariff he unveiled this week, pressuring the BOC to contemplate another jumbo interest rate cut that would set it further apart from the Federal Reserve, former Deputy Governor Tim Lane told MNI.
CANADA (MNI): MNI: Canada Apr-Sept Budget Deficit Widens On Spending
Canada's budget deficit widened to CAD13 billion over the first six months of the fiscal year compared with CAD8.2 billion in the previous period as spending and interest charges rose faster than revenue, another sign Parliament's budget office is correct in predicting the government is on track to break its fiscal anchor.
FRANCE (BBG): Le Pen Says Government Has ‘Put an End’ to Budget Talks
The French government “has put an end to discussions” on possible changes to the social security bill, Marine Le Pen told AFP on Sunday, paving the way for a possible no-confidence vote as soon as Wednesday. “The government has expressed its wish” not to modify the bill, which is part of the budget to be submitted to the National Assembly, the far-right leader said. “That’s extremely clear and we’ve taken note of that,” she added, responding to an interview given by Budget Minister Laurent Saint-Martin to Le Parisien newspaper.
FRANCE (BBG): S&P Sticks With France Rating in Reprieve for Prime Minister
French Prime Minister Michel Barnier won a minor reprieve in his battle to pass a budget and remain in power as S&P Global Ratings reiterated its assessment of the country’s debt. In a statement late Friday, S&P said the euro area’s second-biggest economy remains resilient despite political uncertainty. It cited the impact of labor market reforms under President Emmanuel Macron, high private sector savings, exports, and European Union membership.
ECB (MNI): Weaker Euro Could Offset US Tariffs - ECB’s Guindos
The depreciation of the euro against the dollar since the US elections could have started to compensate for any hypothetical tariffs imposed on European goods by president-elect Donald Trump, European Central Bank Vice President Luis de Guindos said on Friday.
ECB (MNI): MNI BRIEF: Little Macro Difference On Rate Options- de Guindos
The difference for the European economy between the ECB cutting interest rates by 50 basis points in December or to cut 25 bps in both December and January is “minimal”, ECB Vice President Luis de Guindos said on Friday.
ECB (BBG): JPMorgan Sees Half-Point ECB Cut in December on Weak Economy
JPMorgan Chase & Co. has brought forward its call for a half-point interest-rate cut from the European Central Bank to December, citing the bloc’s slowing economic activity. The bank previously expected policymakers to wait until January to accelerate the pace of easing. The JPM report encouraged money market traders to bet on a 50-basis-point cut next month, boosting the chance of such outcome to 20% from 10%.
ECB/EU (BBG): ECB Can’t Solve Political Fallout on Bond Markets, Nagel Says
The European Central Bank won’t act to address government-bond-market fluctuations that stem from political risks, according to Governing Council member Joachim Nagel. Asked about the spike in French borrowing costs related to uncertainty over next year’s budget, the Bundesbank president told an event in Frankfurt that “everything we do in the Governing Council has a monetary policy focus.”
ROMANIA (BBG): Romania’s Establishment Holds Off Far-Right Win, Exit Polls Show
Romania’s ruling Social Democrats were on course to win a parliamentary election, with exit polls showing the party ahead of a nationalist group that had threatened to drive home a blow to the Black Sea nation’s political establishment.
DATA
MACRO ANALYSIS: MNI US Macro Weekly: Politics To The Fore
- We have published and e-mailed to subscribers the MNI US Macro Weekly offering succinct MNI analysis across the range of macro developments over the past week.
- Please find the full report here: https://media.marketnews.com/US_week_in_macro_241129_85b562b773.pdf
EUROPEAN INFLATION: November EZ HICP Y/Y In Line; Services Slightly Softer
Eurozone November flash headline, on a rounded basis, came in in line with consensus at 2.3% Y/Y (vs 2.2-2.3% MNI tracking; 2.3% cons; 2.0% prior).
- On a monthly basis, inflation came in at -0.3% (vs -0.2% cons, 0.3% prior).
- On an unrounded basis, headline HICP was 2.28% Y/Y and -0.28% M/M.
- Core HICP also printed in line with consensus, at 2.7% Y/Y (prior 2.7%; unrounded: 2.74% Y/Y, -0.56% M/M).
- Looking at the individual categories:
- The pace of the decline in energy prices was noticeably less negative at -1.9% Y/Y (-4.6% Oct, -6.1% Sep) on the back of both a 0.6% sequential increase and base effects.
- Services inflation decelerated a bit but remained sticky at 3.9% Y/Y (4.0% prior).
- Non-energy industrial goods inflation increased for the second consecutive month but remained overall soft, coming in at +0.7% Y/Y (vs +0.5% Oct).
- Food, alcohol and tobacco inflation meanwhile tapered off a little after the October jump (2.8% Y/Y Nov vs 2.9% Oct, 2.4% Sep), led by a deceleration in unprocessed food prices to 2.4%Y/Y from the high October 3.0%Y/Y print.
- Looking at the national-level prints, headline HICP inflation remained stable or accelerated in all but three countries in October (Estonia, Greece, Malta).
EUROPEAN INFLATION: Services Inflation Momentum Was Soft In November
Eurozone services inflation momentum was soft in November, with prices falling 0.07% M/M on a seasonally adjusted basis using ECB data (vs an increase of 0.34% in October). This was the lowest sequential SA services price growth since April 2021.
- A reminder that the NSA annual services print was 3.9% Y/Y, below MNI’s median consensus of 4.1% Y/Y. Given that many analysts had expected services inflation to accelerate on base effects in November, we had suspected that underlying momentum was on the soft side.
- On a 3m/3m saar basis, services momentum fell to 2.63% (vs 3.45% prior), its lowest of 2024.
- Non-energy industrial goods price growth also remained subdued at 0.11% M/M (vs 0.04% prior), with momentum falling to 0.66% 3m/3m saar (vs 0.82% prior).
- This allowed core inflation momentum to fall below 2% for the first time since January, at 1.91% (vs 2.50% prior).
- Although no sub-component details are provided in the flash release, this data will be seen as a dovish signal by ECB policymakers. It is probably not enough to support a 50bp cut next month (OIS markets price 28bps of easing) but should support the case to remove the pledge to keep policy “sufficiently restrictive” until inflation reaches the 2% target.
FRANCE DATA: Q3 GDP Confirms Likely Temporary Boost From Olympics
France Q3 final GDP came in a touch below flash at 1.2% Y/Y (vs 1.3% flash, 1.0% prior) though the quarterly reading came in-line with flash at 0.4% Q/Q (0.2% prior).
- As per the flash release, the final emphasizes that growth was "driven by the Paris Olympic and Paralympic Games" boosting household consumption to 0.6% Q/Q (vs 0.0% in Q2) "due to recording of ticket sales for the Olympics".
- Final domestic demand added 0.3pp to quarterly GDP (vs 0.2pp flash) after three consecutive quarters at just 0.1pp whilst stock variations added an unrevised 0.1pp after -0.1pp.
- The net export contribution was revised down to -0.1pp (vs +0.1pp), with exports falling more than initially estimated (-0.8% vs -0.5% flash) due to weaker goods exports.
- A small upward revision for imports (-0.6% vs -0.7% flash, after 0.1% in Q2) does little to change the theme of weaker signs of underlying domestic demand.
- Also of note is the continued decline in gross fixed capital formation (GFCF), -0.7% Q/Q in Q3 after -0.1% in Q2, noted as being "due to the sharp decline in manufactured products, particularly transport equipment". Note eurozone member countries have been increasingly struggling to keep up with its Chinese competitors in manufacturing production as well as innovations in EVs, which has led to some recent sites being shut down or being reduced in size.
GERMAN DATA: Retail Sales Decline in October; Non-Food Weaker
German October retail sales came in at -1.5% M/M (real, seasonally-adjusted) and +1.0% Y/Y. That follows September's +1.6% M//M (after a 0.4pp upward revision) - and means the previous uptrend in place for three months at least temporarily came to a halt. Taking into account consumer sentiment declined again recently, erasing its gains of the last 6 months in the advance December print, the narrative of a consumer-driven recovery in Germany is taking a bit of a hit.
- Looking at the individual categories, October's decrease appears centred in the non-food categories. However the Y/Y number here has been impacted by base effects and the October index value is actually higher than August after a surprisingly high September non-food print (leading to a low -4.0%M/M print). For details see table, note that the split is not exhaustive.
- Food sales meanwhile remained largely unchanged on a sequential comparison in October, and exhibited less of a clear trend recently.
- On a 3M/3M comparison, the trend needle still points upwards, at +2.0% in October vs +1.4% in September.
CANADA DATA: GDP Sees Mixed Implications From Firm Domestic Demand Drivers [1/2]
- Real GDP growth was roughly as expected in Q3 at 1.0% annualized (cons 1.1, range 0.8-1.3) along with generally encouraging revisions.
- We knew that the level of GDP had been revised higher (with annual data pointing to 1.3% higher for 2023 as a whole) but the latest quarterly data show the level of quarterly GDP was 1.36% higher for 4Q23 before building to 1.45% higher for 2Q24.
- That latest boost came from real GDP increasing 2.2% in Q2 (from 2.1) and 2.0% in Q1 (from 1.8), which helps lessen the impact from the realized miss in Q3, with that 1.0% vs the BoC’s forecast of 1.5%.
- The quarterly details were mixed. Household consumption increased 3.5% annualized for its strongest quarter since 1Q23 (coincidentally the same stat as the US).
- That helped see a continuation of robust final domestic demand growth at 2.4% in Q3 after an average 2.3% in 1H24 (vs an average 2.7% pre-revisions).
- However, government spending remains very strong. Govt consumption increased 4.5% in Q3 after 3.8% in Q2 whilst govt investment increased 6.5% after 9.1%. That saw a non-annualized government contribution of 0.30pps after 0.28pps, or put another way, GDP growth would have been mildly negative in Q3 without govt spending (with its 0.26% Q/Q increase).
- Business investment meanwhile slid -3.6% annualized as a small bounce in resi (3.0% after -7.4%) was easily offset by a swing lower in non-resi (-7.7% after 11.1%).
CANADA DATA: Disappointing GDP Momentum Into Q4 [2/2]
- The more concerning aspect for the BoC will be the weakness in momentum heading into Q4.
- Monthly real GDP growth was revised down to 0.1% M/M in September from the 0.3% M/M advance estimate. That was unexpected when looking at the median analyst forecast although BMO and Scotia had pointed to such a move, helped by the release of very weak hours worked data after the Sept flash.
- It was doubly disappointing though as it was followed up by an advance estimate of just 0.1% M/M in October, despite signs of healthier activity in other advance indicators. The latter showed up in the details but “were partially offset by decreases in construction and mining, quarrying, and oil and gas extraction” per the press release.
- It’s still early days for Q4 tracking, but the monthly industry data currently point to real GDP growth of just 0.8% annualized on a 3m/3m basis, far from the 2.0% the BoC forecast in the October MPR.
- That follows the realized undershoot of the BoC forecast of 1.5% in Q3 with today's 1.0% [see part 1].
MARKETS
US TSYS: Late Additional Bid Sees 10Y Yields Down 23bps On The Week
- Treasuries rallied into the early cash close (1400ET) with the small bid seen in the minutes ahead of the month-end close at 1300ET growing more notably in the hour afterwards.
- Cash yields closed 7.6-9.5bp lower from Wednesday’s close, with declines led by 10s being driven by real yields falling 8.3bps.
- The 10Y yield of 4.1685% has slipped 23bps on the week, touching its lowest since Oct 22 via a recent cycle high of 4.501% on Nov 15.
- TYH5 closed at 111-05+ (+ 08+) having touched a session high of 111-08 just before the month-end index close at 1300ET. It’s close at 1315ET came prior to the latest additional bid in cash trading.
- It’s seen a step closer to resistance at 111-14 (50-day EMA). Clearance there could suggest that the recent uptrend is more than a short-term corrective bull cycle.
- Fed Funds price 16.5bp of cuts for the Dec 18 FOMC decision vs ending last week closer to a 50/50 decision between pausing or cutting another 25bps.
- Next week is headlined by the November payrolls report, watched after October’s weak report was at least partly impacted by adverse weather along with an exceptionally low initial response rate. We do however also hear from the Fed's Powell, Waller & Williams and get ISM Services.
EGBS: Late Support From ECB 50bp Cut Call, BTP-Bund Near Three-Year Low
- EGB front yields were supported ahead of the close by JPMorgan bringing forward their call for a 50bp ECB cut to the Dec 12 meeting (from January prior) has helped support front yields ahead of the close. OIS prices 31bps vs 28bp prior.
- 2Y yields closed firmly lower across EGBs, led by France at -6.7bp, whilst Italy led in 10Y space with -7.2bp (falling almost 3bps over the final hour).
- There has been some significant further adjustments in 10Y spreads to Bunds, with BTP-Bund -3.2bps on the day at 118.6bp for its lowest close since Oct 18 and before that Nov 2021.
- OAT-Bund saw a smaller adjustment on the day, 1.2bp tighter, but at 80.4bps it’s notable as it’s fully reversed Wednesday’s shunt higher to 89bp on fiscal concerns.
- Still some risk events ahead in France, with the far-right now seeking further concessions alongside a threat to oust the government next week if their demands are not met (see here).
- Ratings/fiscal momentum remains integral for markets, with OATs already trading cheap vs. other EGBS when looking solely at credit ratings. This suggests that a negative outlook move from S&P would have limited lasting impact on OAT pricing (all else equal).
FOREX: Japanese Yen Surges Following Tokyo CPI, Ueda Provides Late Boost
- The majority of the Friday action in currency markets occurred overnight and were centred around significant Japanese yen strength, following the Tokyo CPI data coming in higher than expectations.
- Narrowing rate expectations prompted a near 200pip move for USDJPY, potentially exacerbated by lower liquidity amid the US Thanksgiving holiday. This tipped the pair to new pullback lows of 149.54, well within range of support at 149.09, the Oct 21 low. It's the upcoming Tankan survey that we see as key for the BoJ's bias into December. The release is due on December 12th, just one week before the last BoJ decision of the year.
- USDJPY recovered back above the 150 handle ahead of the month-end WMR fix, and extended back towards 150.50 ahead of the close. Late headlines from BOJ’s Ueda on further Yen weakness being a big risk sent USDJPY briefly back below 150.00, keeping volatility for the Japanese currency a key theme for FX market participants. The USD index is just moderately lower on Friday, however ranges for major pairs in G10 remained relatively contained with NZD outperforming, up 0.4%.
- USDCAD has fully reversed the increase seen after Canadian GDP data indicated disappointing momentum heading into Q4, with October tracking at ~0.8% annualized vs the BoC forecast of 2.0% for Q4. It’s currently at 1.4010 having pulled back from a high of 1.4046 following the data.
- In emerging markets, USDBRL rose to another fresh record high of 6.1153 before a plethora of government and BCB officials calmed markets, prompting a near 2% pull lower to track closer to unchanged levels on the session.
- Aussie retail sales and US ISM manufacturing PMI kicks the data calendar off next week, with the clear focus on the year’s final US employment report on Friday.
US STOCKS: S&P 500 At All-Time Highs Ahead Of Early Close
- ESZ4 has seen strong gains since the cash open, continuing ahead of the early close (cash 1300ET, futures 1315ET), with a macro boost from 10Y real yields falling 6bps from Wednesday's close.
- It has recently touched a high of 6060.00 (+0.7%), clearing the bull trigger at 6053.25 (Nov 11 high) to open 6070.16 (1.382 proj of Sep 6-17-18 price swing) after which lies 6103.88 (1.500 proj of the same swing).
- It chimes with the cash S&P 500 touching all-time highs
- E-minis: S&P 500 (+0.7%), Nasdaq 100 (+0.9%), Dow Jones (+0.7%) and Russell 2000 (+0.4%).
- SPX drivers: all major sectors in the green, led by IT (+1.2%), consumer discretionary (+0.9%) and industrials (+0.6%). Utilities (+0.2%) and real estate (+0.3%) lag.
- Some more mixed performance across major names. Nvidia (+2.7%) stands out as it recoups losses from earlier in the week along with strength for Tesla (+2.2%) and Meta (+1.1%). Alphabet (-0.1%) the notable laggard of mega caps, weighed by further regulatory pressures this time from Canada’s antitrust regulator.
COMMODITIES: Crude Edges Lower, Henry Hub, Gold Gain
- WTI is set to fall 3.8% on the week, driven by the Israel-Hezbollah ceasefire, albeit a fragile one. Downside is moderated by reports this week suggesting OPEC+ is discussing output return delays for Q1 2025.
- WTI Jan 25 has edged down by 0.3% on Friday to $68.5/bbl.
- The ceasefire remains in place, but Israel and Lebanon blamed each other on Thursday for violating a fragile US-brokered agreement that came into effect a day earlier.
- With a bearish threat in WTI futures remaining present, attention is still on $65.74, the Oct 1 low, and $63.90, the Sep 10 low and key support.
- Elsewhere, Henry Hub is continuing today’s rally amid thin holiday trading volumes and cooler weather and high LNG feedgas flows.
- US Natgas Jan 25 is up by 4.4% at $3.34/mmbtu.
- Meanwhile, spot gold has risen by 0.6% on Friday to $2,653/oz, leaving the yellow metal 2.3% lower on the week, following the sharp pull-back on Monday.
- Resistance to watch remains at $2,721.4, Monday’s high, while key support to monitor is at $2,536.9, the Nov 14 low.
| Date | GMT/Local | Impact | Country | Event |
| 30/11/2024 | 0130/0930 | *** |  CN | CFLP Manufacturing PMI |
| 30/11/2024 | 0130/0930 | ** | CN | CFLP Non-Manufacturing PMI |
| 02/12/2024 | 2200/0900 | ** |  AU | S&P Global Manufacturing PMI (f) |
| 02/12/2024 | 0030/1130 | AU | Business Indicators | |
| 02/12/2024 | 0030/1130 | * | AU | Building Approvals |
| 02/12/2024 | 0030/1130 | ** | AU | Retail Trade |
| 02/12/2024 | 0030/0930 | ** |  JP | S&P Global Final Japan Manufacturing PMI |
| 02/12/2024 | 0145/0945 | ** | CN | S&P Global Final China Manufacturing PMI |
| 02/12/2024 | 0730/0830 | ** |  CH | Retail Sales |
| 02/12/2024 | 0815/0915 | ** |  ES | S&P Global Manufacturing PMI (f) |
| 02/12/2024 | 0845/0945 | ** |  IT | S&P Global Manufacturing PMI (f) |
| 02/12/2024 | 0850/0950 | ** |  FR | S&P Global Manufacturing PMI (f) |
| 02/12/2024 | 0855/0955 | ** |  DE | S&P Global Manufacturing PMI (f) |
| 02/12/2024 | 0900/1000 | *** | IT | GDP (f) |
| 02/12/2024 | 0900/1000 | ** |  EU | S&P Global Manufacturing PMI (f) |
| 02/12/2024 | 0930/0930 | ** |  GB | S&P Global Manufacturing PMI (Final) |
| 02/12/2024 | 1000/1100 | ** | EU | Unemployment |
| 02/12/2024 | 1000/1100 | EU | ECB's Lagarde in EIB Group Climate Council | |
| 02/12/2024 | 1445/0945 | *** |  US | S&P Global Manufacturing Index (final) |
| 02/12/2024 | 1500/1000 | *** | US | ISM Manufacturing Index |
| 02/12/2024 | 1500/1000 | * | US | Construction Spending |
| 02/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 02/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 02/12/2024 | 2015/1515 | US | Fed Governor Christopher Waller | |
| 02/12/2024 | 2130/1630 | US | New York Fed's John Williams |