Highlights:
- Treasuries firm through Thanksgiving highs in shortened session
- USD/JPY at new post-election lows as Tokyo CPI heats up
- Eurozone CPI estimate provides few surprises ahead of last ECB meet of the year
- Treasuries have pushed through pre-Thanksgiving highs overnight ahead of today’s shortened session. Cash closes at 1400ET and Tsy futures at 1315ET.
- Crude futures reversing yesterday’s increase offer only a mild tailwind with moves appearing to rather be some post-Thanksgiving catch-up.
- Cash yields are 2.7-5.7bp lower from Wednesday’s close, with declines led by 20s.
- 10Y yields are at 4.211% (-4.7bps) off an earlier low of 4.2013%. A clear break through the 4.20% level could open the more interesting area of 4.1548% for a very short term retrace of the Sep/Nov range.
- 2s10s has seen a return of the recent flattening trend, currently 1.1bp (-2.8bp) as it nears recent lows of modest inversion after Bessent’s Treasury Sec pick.
- TYZ4 trades at 111-03+ off earlier highs of 111-05 having breached Wednesday’s 111-01, on reasonably strong cumulative volumes of 485k.
- It sets sights on resistance at 111-14 (50-day EMA) as a short-term corrective bull cycle remains in play. Support meanwhile is seen at 110-01 (Nov 25 low).
- No data, Fedspeak or issuance today.
STIR: Fed Rate Path Further Off Cycle Highs Post-Thanksgiving
- Fed Funds implied rates have pushed lower through European hours in a more pronounced decline after edging lower through yesterday’s holiday-thinned short session.
- Cumulative cuts from 4.58% effective: 16.3bp Dec (+0.4bp), 23bp Jan (+1.1bp), 36bp Mar (+1.2bp) and 55bp June (+2.3bp).
- It sees the largest tilt towards a 25bp cut vs a pause from the FOMC next month since the hawkish reaction to Fedspeak from Kugler and Powell on Nov 14 the Jun’25 at its lowest since Nov 21.
- At 16bp priced though, it still remains quite closely in the balance with next Friday’s payrolls (Dec 6) and the following Wednesday’s CPI (Dec 11) reports likely playing a pivotal role.
- There is no data or Fedspeak scheduled today, leaving headlines/positioning in the driving seat.
RATINGS: /RATINGS: S&P To Update On France Later, Negative Outlook Move Likely
S&P are scheduled to provide their latest sovereign credit rating update on France (current rating: AA-; Outlook Stable) after the close (any time from 21:00 London).
- We view a negative outlook move as the most likely outcome.
- S&P downgraded France back in May (ahead of the EU & French elections) and a negative outlook move would match Fitch’s rating/outlook settings, one notch below Moody’s (Moody’s also have France on outlook negative).
- French political and fiscal risks have further intensified over the last couple of weeks, with PM Barnier ultimately risking some of his government’s fiscal credibility to try and promote political stability.
- Barnier’s choice to renege on the electricity tax hike outlined in the draft Budget has done little to placate his rivals.
- The far-right is now seeking further concessions alongside a threat to oust the government next week, if their demands are not met.
- While the initial market reaction to Barnier’s concession was OAT-positive, relief was limited, given the circularity of the fiscal and political risks.
- The OAT spread vs. 10-Year Bunds hit the widest level since ’12 earlier in the week, while 10-Year GGB yields traded through OATs for the first time and the 10-Year SPGB/OAT/PGB fly continues to register fresh cycle lows.
- 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).
- Some desks have outlined 90bp vs. Bunds as a potential area of interest when it comes to OAT long entries, although this isn’t the consensus view.
- Most sell-side names remain cautious on OATs and suggest using any rallies/spread tightening to lighten exposure.
Fig. 1: OAT/Bund (rhs) & GGB/OAT (lhs) 10-Year Yield Spreads
Source: MNI - Market News/Bloomberg
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: Le Pen Sets 2 Dec Deadline For PM To Respond To 4 RN 'Red Lines'
On the evening of 28 Dec, far-right Rassemblement National (National Rally, RN) parliamentary leader Marine Le Pen gave PM Michel Barnier a deadline of Monday 2 December to accede to the four 'red line' demands outlined by RN leader Jordan Bardella or risk a censure motion. The timeline looks to have been moved up, with the threat of censure not centring on the 18-20 Dec period in which the vote on the main state budget (PLF) is set to come, but to the 2-4 Dec period in which the National Assembly is likely to vote on the Social Security Finance Bill (PLFSS), which precedes the main budget.
- Two of the 'red lines' relating to the reindexing of pensions from 1 Jan and cancelling the delisting of medicines are notable as they are measures included in the PLFSS. Without RN support or abstention, the PLFSS will not pass and will require the use of Art. 49.3 to force it through, in turn risking a censure motion.
- In the event a censure motion is called it has to take place and pass within 48 hours or the legislation that it relates to (the PLFSS) becomes law, even if the gov't is removed eventually.
- If the gov't is removed within 48 hours the bill does not become law. The Barnier administration would remain in place in a caretaker capacity until a new gov't can be formed. It would operate under Art. 47 of the constitution, where it can provisionally implement the budget 'by ordinance' allowing day-to-day management of gov't but no new legislation.
FOREX: JPY Surges on Tokyo CPI, Leaving Tankan as Next BoJ Hurdle
- JPY is firmer against all others in G10 headed into the final session of the week, with the higher-than-expected Tokyo CPI print for November leading the currency higher. The regional print is a leading indicator for the national figure that follows in three weeks time, and will add further pressure to the split pricing at the BoJ's December decision.
- The fallout for the JPY has tipped USD/JPY to new pullback lows of 149.54, well within range of the key support at the 149.14 100-dma. A bearish close today would add to the corrective impetus and expose 149.09, the Oct 21 low, however 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.
- The readthrough for the USD has resulted in further weakness across the USD Index, however volumes remain particularly light given the only-partial opening of US markets today - conviction will likely remain light until next week, and as markets look to gauge risk ahead of the NFP print on Friday.
- For the rest of the Friday session, Eurozone CPI is the headline, expected to show the CPI estimate at 2.3% Y/Y, keeping the annual rate sticky and above the last 2.0%.
- Canada GDP numbers are set to cross, as well as speeches from ECB's de Guindos and Nagel.
EQUITIES: Bear Trend in EStoxx Remains Intact
- S&P E-Minis are unchanged and the contract is trading at this week’s highs. Sights are on the key resistance and bull trigger at 6053.25, the Nov 11 high. A break of this hurdle would resume the uptrend and open 6070.16, a Fibonacci projection.
- A bear trend in Eurostoxx 50 futures remains intact. 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.
COMMODITIES: NatGas Futures on Front Foot After Recent Sell-Off
- The long-term trend condition in Gold remains bullish and the Oct 31 - Nov 14 bear leg appears to have been a correction. Moving average studies are in a bull-mode position, highlighting a dominant uptrend.
- A bearish threat in WTI futures remains present and Monday’s 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.
| Date | GMT/Local | Impact | Country | Event |
| 29/11/2024 | 1330/0830 | *** |  CA | GDP - Canadian Economic Accounts |
| 29/11/2024 | 1330/0830 | *** | CA | Gross Domestic Product by Industry |
| 29/11/2024 | 1330/0830 | *** | CA | CA GDP by Industry and GDP Canadian Economic Accounts Combined |
| 29/11/2024 | 1330/0830 | ** |  US | WASDE Weekly Import/Export |
| 29/11/2024 | 1330/0830 | *** | CA | Gross Domestic Product by Industry |
| 29/11/2024 | 1600/1100 | CA | Finance Dept monthly Fiscal Monitor (expected) | |
| 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 | 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 |
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