Highlights:
- French politics undermines EUR, French bonds
- EUR/GBP again testing range-defining support
- ISM Manufacturing in focus, ahead of Friday's NFP
US TSYS: Friday’s Late Rally Reversed, Fedspeak In Focus Today
- Treasuries have traded in relatively narrow ranges ever since opening lower following further tariff threats from President-elect Trump over the weekend, this time proposing 100% tariffs on BRICS countries.
- The move on the day is also exaggerated by the late rally into the early close on Friday in post-Thanksgiving thinned trade, a move that has mostly been fully pared (30s being the exception with their outperformance on the day).
- Cash yields are 2-4.5bp higher, with 5s leading the increases and 30s lagging.
- TYH5 is at 111-03 (-03), towards the middle of the day’s range and well within Friday’s range, on average volumes a little over 300k.
- Resistance remains exposed, with Friday’s high of 111-08 before 111-13+ (50-day EMA). Further gains here can test the corrective nature of prior increases.
- Data: S&P Global US mfg Nov f (0945ET), ISM mfg Nov (1000ET), Construction spending Oct (1000ET)
- Fedspeak: Waller keynote speech and Q&A (1515ET), Williams keynote remarks and Q&A (1630ET)
- Bill issuance: US Tsy $81B 13W & $72B 26W bill auctions (1130ET)
STIR: Fed Rate Path Holds Recent Declines, Notable Fedspeak Late On
- Fed Funds implied rates are little changed from Friday’s early close. For a quick comparison over the Thanksgiving period for those away, the Dec rate is 0.5bp higher since Wednesday’s close, Jan is unchanged and the Jun’25 and Dec’25 rates are 2.5-3bp lower.
- Cumulative cuts from 4.58% effective: 16bp Dec, 22bp Jan, 36bp Mar and 54bp Jun.
- Today sees the final US mfg PMI and ISM mfg in initial data focus before potentially important Fed appearances from permanent voters Waller and Williams.
- Gov. Waller speaks on the economic outlook as part of a speech on “Building a Better Fed Framework” at 1515ET (text + Q&A)
- NY Fed’s Williams gives keynote remarks followed by Q&A to the Queens Chamber of Commerce at 1630ET.
- Fedspeak has turned more hawkish since the Nov FOMC, with some members discussing potential for a pause or higher neutral rate estimates. Waller, however, last spoke on the economy and monetary policy back in mid-October and has in the past been used to provide important steers for the market.
Williams has spoken more recently however, telling Barron’s on Nov 15 (released Nov 21) that the Fed is “not quite there yet” on inflation, he doesn’t see any signs of a recession from data and sees potential growth closer to 2.25-2.5% vs 2% pre-pandemic.
EUROPE ISSUANCE UPDATE:
Gilt Tender Consultation for 35+ year conventional/ linker
- The DMO has announced it will hold a consultation today, seeking views on the scheduling of a gilt tender on Thursday 5
December for a conventional gilt or an index-linked gilt with a maturity of over 35 years. - The outcome of the consultation and likely confirmation of the gilt on offer will be announced at 7:30GMT tomorrow. The DMO notes that feedback is requested by 15:30GMT today.
FRANCE: PM To Meet w/Gov't Party Leaders ~1345CET As Censure Motion Looms
PM Michel Barnier is set to hold meetings with the leaders of parties in his minority gov't today at 1345CET (0745ET, 1245GMT) as he seeks a way to pass the social security budget without triggering a censure motion against his administration. It had initially been viewed that the crunch time for the Barnier gov't would come between 18-20 Dec with the vote on the main state budget for 2025. However, the far-right Rassemblement National (RN, National Rally) has voiced its opposition to measures included in the social security budget (PLFSS), an associated but separate piece of legislation.
- A final reading of the PLFSS is set to take place in the National Assembly at 1500CET (0900ET, 1400GMT). At this stage, Barnier will be left with few options. Either he gives in to the RN's 'red lines' in order to gain their support. This carries notable political risk in being accused of working with the far-right. Alternatively, he could force through the PLFSS without a vote using Art. 49.3 of the Constitution. However, RN has said that if the gov't pursues this path the party will back a censure motion from the leftist New Popular Front (NFP). The NFP and RN voting together would far outweigh the gov't and result in the ouster of Barnier and his cabinet.
- If a censure motion is launched, the National Assembly would take it up on 4-5 Dec. RN leader Jordan Bardella claimed earlier that 'barring a last minute miracle', RN would vote for the gov'ts ouster.
EMERGING MARKETS: Kremlin Talks Up De-Dollarisation, But Other BRICS Wary
State media reporting comments from Kremlin spox Dmitry Peskov regarding threats from US President-elect Donald Trump made on 30 Nov that if the BRICS countries seek to create a new currency to reduce reliance on the US dollar. Peskov says that "any attempt to force dollar use will backfire". Peskov says the dollar "is losing its appeal as a reserve currency for many countries", and that the trend [against the dollar] "is gathering pace".
- On his Truth Social platform, Trump made a post stating “The idea that the Brics Countries are trying to move away from the Dollar while we stand by and watch is OVER, We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy,”
- While a move away from the US dollar would serve Russian interests due to the major sanctions in place, other BRICS nations have been far less keen to raise the prospect of a separate new currency. BBG reports comments from the South African Department of International Relations and Cooperation saying “Recent misreporting has led to the incorrect narrative that BRICS is planning to create a new currency. This is not the case. The discussions within BRICS focus on trading among member countries using their own national currencies.”
ECB: Weekly ECB Speak Wrap (Nov 25 - Dec 2)
The key piece of ECB-speak last week was Executive Board member Schnabel’s interview with Bloomberg. Schnabel, considered a hawkish-leaning but influential policymaker at the ECB, pushed back against market pricing for rates to be cut below neutral (which she estimates as between 2 and 3%).
- Her comments also seemed to downplay the probability of a 50bp cut in December, “I have a strong preference for a gradual approach”.
- On the other side of the spectrum, Banque de France Governor Villeroy came out with much more openly dovish remarks than his previous comments.
- The MNI Policy Team’s latest sources piece emphasised that the main debate ahead of the December meeting is probably around any tweaks to the ECB’s guidance, specifically the bank’s pledge to keep policy “sufficiently restrictive” until inflation reaches target.
- Schnabel and Nagel both downplayed the weak November flash PMIs.
- Meanwhile, the November flash inflation round did not show enough of a downward surprise (core HICP at 2.7% was only below consensus due to favourable rounding) to generate any meaningful repricing in markets.
- Markets are not yet convinced at the prospect of a 50bp December cut, but on Friday afternoon, JPMorgan became the first sell-side outlet we have seen to officially call for such a move.
FULL PUBLICATION HERE: 241202 - Weekly ECB Speak Wrap.pdf
FOREX: French Politics Undermines EUR, USD Stronger as Trump Targets BRICS
- Focus for the session ahead remains on French politics, with PM Barnier holding discussions with ministers from his minority government today, ahead of a possible censure motion brought by the far-right RN party which, if held, would be primed for Wednesday/Thursday, and could theoretically lead to a collapse of the current governing regime.
- EUR has traded weaker as a result, with the pair showing below $1.0500 at the European open, putting EUR/USD within range of next support at 1.0474, the Nov27 low - but it's EUR/JPY that's seeing more notable price action here, as the cross breaks to multi-month lows as 158.11 support gives way. The morning's price action shows markets remain sensitive to headline risk and French politics could be the dominant theme outside of US data this week.
- The greenback is firmer against all others in G10, with the dollar benefiting from the downleg in equities from the open as well as Trump's warnings over the weekend that a unified BRICS currency positioned to replace the dollar would result in member states facing 100% tariffs for goods headed to the US, and Trump requires a "commitment" from the countries as an assurance. The USD Index bounce has topped both the Friday and Thursday highs to make 106.924 the next level above. The formation of a golden cross late last week also defines the near-term momentum, the first since March this year.
- US data set for release Monday includes the final manufacturing PMI for November and the Manufacturing ISM, at which markets expected an uptick to 47.6 from 46.5 and a more notable uptick in prices paid, to 56.0 from 54.8 previously. The data will be watched carefully for any indications ahead of Friday's Payrolls release - at which markets expect 200k jobs added, and an unchanged unemployment rate at 4.1%.
GBP/USD Recovering Well, But EUR/GBP Support More Consequential
- GBP/USD recovering well off the intraday lows, and an extension of this gradual bounce will erase the overnight leg lower on a move above 1.2732, while 1.2750 marks the more meaningful intraday resistance.
- Trade in the pair has been led by the greenback and post-Trump market vol primarily, with longer-held support in EUR/GBP helping contain GBP on several occasions across November. These range-defining levels are again under pressure Monday, with today's 0.8270 low well within range of 0.8260/68 layered support. A close at current, or lower, levels would be the lowest since March 2022. 0.8203 below marks the '22 low and weakest print for the cross since the Brexit vote in 2016.
- It's clear that French politics and continued rate cut talk from ECB members are driving the price action here, which should keep focus on budget deliberations and the sustainability of the Barnier government, and the near-zero implied odds of a BoE cut in December are adding to the pressure.
- Perhaps notably, a break lower in the cross this month would run against seasonal trends. The average December EUR/GBP return dated back 25 years is +1.1%, with EUR generally enjoying a strong month (+1.5% vs. JPY, 1.5% vs, USD, +1.3% vs. CAD).
INR: Rupee Sharply Declines to Fresh Low Amid Growth Concerns, RBI Intervenes
The rupee has sharply declined to a fresh record low versus the dollar after data released after trading hours Friday showed that India's economy grew by +5.4% y/y in the July-September quarter, well below expectations of a larger +6.5% expansion and below the +6.7% recorded in the previous quarter.
- Citing local bankers, Reuters say likely intervention by the RBI helped the rupee avert deeper losses, but the surge in the central bank's position in the non-deliverable forward market reflects the extent of pressure on the rupee and suggests that the currency will fall further.
- The RBI meet later in the week and while the central bank moved to a neutral stance at its previous meeting, only a minority of analysts expect a rate cut at this juncture. As a reminder, RBI Governor Das sounded hawkish in November when he said the central bank will consider its job unfinished until inflation moderates around its 4% target on a durable basis. Our full preview for Friday’s decision will be released later in the week.
- MUFG note that the rupee is likely to depreciate toward 86 per dollar by the final quarter of 2025, as less favourable economic growth will probably contribute to the weakness as it crimps inflows of foreign capital. Still, INR should fare better than its Asia peers between January and June 2025 amid US tariff increases, MUFG add.
EQUITIES: E-Mini S&P Remains Close to Key Resistance and Bull Trigger
Eurostoxx 50 futures are in consolidation mode. A bear trend remains intact and a fresh cycle low on Nov 19 marked a resumption of the downtrend that started Sep 30. Price has traded through 4746.94, 61.8% of the Aug 5 - Sep 30 bull cycle. This exposes 4662.12 next, the 76.4% retracement point. Initial firm resistance has been defined at 4961.00, the Nov 6 high, where a break would highlight a reversal. First resistance is at 4861.43, the 50-day EMA. On Friday, S&P E-Minis pierced key resistance and the bull trigger at 6053.25, the Nov 11 high. This confirms a fresh cycle high and marks a resumption of the uptrend. Note that moving average studies remain in a bull-mode set-up and this set-up highlights a dominant uptrend and positive market sentiment. Sights are on 6070.16, a Fibonacci projection. Initial support to watch lies at 5960.85, the 20-day EMA.
- Japan's NIKKEI closed higher by 304.99 pts or +0.8% at 38513.02 and the TOPIX ended 34.01 pts higher or +1.27% at 2714.72.
- Elsewhere, in China the SHANGHAI closed higher by 37.526 pts or +1.13% at 3363.982 and the HANG SENG ended 126.68 pts higher or +0.65% at 19550.29.
- Across Europe, Germany's DAX trades lower by 22.44 pts or -0.11% at 19604.45, FTSE 100 lower by 1.9 pts or -0.02% at 8285.28, CAC 40 down 68.62 pts or -0.95% at 7167.05 and Euro Stoxx 50 down 25.3 pts or -0.53% at 4779.14.
- Dow Jones mini down 71 pts or -0.16% at 44984, S&P 500 mini down 11.5 pts or -0.19% at 6040, NASDAQ mini down 34.5 pts or -0.16% at 20958.75.
COMMODITIES: Move Lower in WTI Futures Last Week Reinforces Bearish Theme
A bearish threat in WTI futures remains present and the Nov 25 move lower reinforces this theme. Attention is on $65.74, the Oct 1 low, and $63.90, the Sep 10 low and key support. For bulls, a stronger reversal to the upside would instead refocus attention on the key short-term resistance at $77.04, the Oct 8 high. Initial firm resistance to watch is unchanged at $72.41, the Nov 7 high. The long-term trend condition in Gold is unchanged and remains bullish. The Oct 31 - Nov 14 bear leg appears to have been a correction. Moving average studies remain in a bull-mode position, highlighting a dominant uptrend. Resistance to watch is $2721.4, the Nov 25 high. Clearance of this level would highlight a bullish short-term development. Key support to monitor is $2536.9, the Nov 14 low.
- WTI Crude up $0.57 or +0.84% at $68.59
- Natural Gas down $0.2 or -5.86% at $3.167
- Gold spot down $9.15 or -0.35% at $2633.39
- Copper down $1.9 or -0.46% at $412.2
- Silver down $0.38 or -1.24% at $30.2345
- Platinum down $5.83 or -0.61% at $943.37
| Date | GMT/Local | Impact | Country | Event |
| 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 | ** |  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 | 1000/1100 | *** | IT | GDP (f) |
| 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 | |
| 03/12/2024 | 0001/0001 | * | GB | BRC-KPMG Shop Sales Monitor |
| 03/12/2024 | 0030/1130 | AU | Balance of Payments: Current Account | |
| 03/12/2024 | 0700/0200 | * |  TR | Turkey CPI |
| 03/12/2024 | 0730/0830 | *** | CH | CPI |
| 03/12/2024 | 0800/0900 | EU | ECB's Cipollone at GeoEconomy Talk | |
| 03/12/2024 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 03/12/2024 | - | *** | US | Domestic-Made Vehicle Sales |
| 03/12/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 03/12/2024 | 1500/1000 | *** | US | JOLTS jobs opening level |
| 03/12/2024 | 1500/1000 | *** | US | JOLTS quits Rate |
| 03/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 03/12/2024 | 1735/1235 | US | Fed Governor Adriana Kugler | |
| 03/12/2024 | 1830/1330 | US | Chicago Fed's Austan Goolsbee | |
| 03/12/2024 | 2045/1545 | US | Chicago Fed's Austan Goolsbee | |
| 04/12/2024 | 2200/0900 | * | AU | S&P Global Final Australia Services PMI |
| 04/12/2024 | 2200/0900 | ** | AU | S&P Global Final Australia Composite PMI |