NEWS
ECB (MNI): ECB's Wunsch Talks Down Rate Cut Pricing
In an interview with Bloomberg, ECB's Wunsch states that bets on rate cuts risk prompting the ECB to hike instead, noting that markets are optimistic to rule out further hikes. Wunsch adds that rates should stay unchanged in both December and January. Worth recalling our ECB policy exclusive piece from late last week in light of those Wunsch comments: "European Central Bank policymakers are keen to ensure markets do not price in rate cuts prematurely, and will continue to stress lingering upside risks to inflation in coming weeks even as policy looks set to remain unchanged in December and possibly for some months afterwards, Eurosystem sources told MNI."
ARGENTINA (MNI): Libertarian Javier Milei Wins Argentinian Runoff Election
Libertarian candidate Milei has won the runoff of the Argentinian presidential election. His term begins December 10th, with Milei having won 56% versus economy minister Massa’s 44% (who is now set to take a leave of absence). Milei has repeated his view that Argentina "doesn't have room for gradual measures" and that Argentina will follow "libertarian ideals". During the run up to the election, Milei promised to replace the Argentine Peso with the greenback, close the central bank and make sharp cuts to public spending. A Milei presidency may also have implications for trade as he wants Argentina to become closer to the US and he is critical of China and Brazil.
ISRAEL/HAMAS (BBG): Hostage Talks Progress as Heavy Israel-Hamas Fighting Grips Gaza
Israeli forces engaged in heavy fighting with Hamas in the northern Gaza Strip overnight as the US said it was optimistic about a deal to free hostages held by the militant group. The Israeli military and Shin Bet, the country’s domestic security service, said they killed three Hamas commanders, while fighter jets bombed more buildings and sites Israel says are used by Hamas. The main thrust of Israel’s ground offensive is eastwards into Gaza City, which the military says is Hamas’s “center of gravity.”
ITALY (BBG): Italy Exits Moody’s Junk Danger Zone in Big Win for Meloni
Italy is no longer in danger of a cut to junk at Moody’s Investors Service, which raised its rating outlook to stable in a huge win for Prime Minister Giorgia Meloni. The country’s assessment was kept at Baa3, the lowest investment grade, but the company removed the threat of a downgrade after more than 15 months with a negative view instituted just before the populist premier won power. The decision “reflects a stabilization of prospects for the country’s economic strength, the health of its banking sector and the government’s debt dynamics,” Moody’s said in a statement on Friday.
PORTUGAL (MNI): Moody's Two Notch Upgrade Reaffirms Positive Fundamentals
Portugal saw a two-notch rating upgrade to A3 (outlook stable) from Moody's after hours on Friday, helping the 10-year PGB/Bund spread to tighten 4.3bps to 60.4bps. The move brings Moody's rating for Portugal above that of S&P (BBB+, outlook positive) and in line with Fitch (A-, outlook stable). The decision provides further support to analyst expectations that Portugal's strong fundamentals should help spreads to Bunds stay contained around current levels.
GERMANY (BBG): German Economy Chief Warns of Major Blow From Budget Ruling
German Vice Chancellor Robert Habeck said last week’s ruling by the country’s top court curbing the use of off-budget special funds is a major blow for Europe’s biggest economy and could lead to higher power costs for households and companies. Constitutional Court judges said that €60 billion ($65.5 billion) in untapped credit authorizations can’t be transfered into the government’s Climate and Transformation Fund, potentially threatening projects like the expansion of hydrogen infrastructure and charging stations for electric vehicles.
SPAIN (MNI): PM Sanchez Reappoints Calviño as Econ Min - Gov't Source
Wires reporting that newly re-elected Prime Minister Pedro Sanchez has reappointed Nadia Calviño as Minister of Economic Affairs and Digital Transformation, a post she has held since 2018. She also retains her position as First Deputy PM. Calviño's re-appointment is likely to be seen as a signal to markets of intended continuity within policy-making in Madrid amid notable social unrest in the wake of the formation of a gov't reliant on the support of Catalan separatists.
CHINA (MNI): China’s Nov Loan Prime Rate Unchanged
MNI (Beijing) China's Loan Prime Rate remained unchanged on Monday according to a People's Bank of China statement, in line with market expectation following the PBOC's decision to keep a key policy rate steady on November 15. The one-year LPR, based on the PBOC’s Medium-term Lending Facility rate and quotes submitted by 18 banks, was left at 3.45% and the five-year plus maturity was held at 4.2%.
CHINA (BBG): China Drafts List of 50 Property Firms Eligible for Funding
Chinese regulators are drafting a list of 50 developers eligible for a range of financing, according to people familiar with the matter, the nation’s latest effort to put a floor under the property crisis. China Vanke Co., Seazen Group Ltd. and Longfor Group Holdings Ltd. are among companies that have been named in a draft of the so-called white list, the people said, asking not to be named because the matter is private. The list, which includes both private and state-owned developers, is intended to guide financial institutions as they weigh support for the industry via bank loans, debt and equity financing, the people said. It couldn’t be determined which other developers were included on the draft list.
CHINA (MNI): China Likely to Ease Developer Borrowing Restrictions
MNI (Beijing) China will likely relax its "three red lines," easing borrowing restrictions on property developers alongside other stimulus to boost home sales as bond defaults peak following two years of deleveraging, policy advisors and market analysts told MNI. The three red lines, implemented in August 2020, cap debt-to-cash, debt-to-assets and debt-to-equity ratios to restrict the amount of new borrowing developers can raise each year, while prompting them to provide greater detail on their liabilities.
BOJ (MNI): BOJ Needs Signs Of Real Wages Growth - Yamamoto
Real wage growth will have to turn positive or be clearly turning positive before the Bank of Japan will confirm that it has achieved the virtuous wage-price cycle it needs for reaching its inflation target, something which is still not guaranteed, a former BOJ executive director told MNI. With real wages coming in negative for an 18th straight month in September, the outlook remains uncertain, Kenzo Yamamoto, now the representative for KY Initiative, said in an interview in which he declined to speculate on how or how soon the BOJ would phase out its negative interest rate policy and yield curve control framework.
JAPAN (MNI): Parliament Begins Debate on Extra Budget Amid Continued Decline in Gov't's Approval Ratings
Japan's parliament started debating the government's Y13.2tn extra budget for the fiscal year running through end-March, which is intended to ease the financial pressure on household and help the beleaguered Kishida administration regain political momentum. Speaking in the House of Representatives, the Prime Minister sought to defend his tax cut proposals. They have been interpreted as an attempt by Kishida to get rid of his nickname "zozei-megane" (bespectacled tax hiker) and have proven unpopular with both the voters.
AUSTRALIA/CHINA (BBG): Australia’s PM Says China Ties Hurt by Navy Divers Incident
Australia made clear its “strong objections” to Beijing after a Chinese destroyer disregarded warnings about personnel in the water and used sonar pulses that injured a navy diver, Prime Minister Anthony Albanese said. “This was dangerous, it was unsafe and unprofessional from the Chinese forces,” Albanese said in an interview with Sky News on Monday. “The consequences of these events are that they do damage to the relationship.” A People’s Liberation Army-Navy destroyer ignored requests to keep clear of the divers that had been freeing nets entangled around propellers of the Australian navy’s HMAS Toowoomba.
DATA
EUROZONE SEP CONSTRUCTION OUTPUT +0.4% M/M, -0.3% Y/Y (MNI)
GERMANY OCT PRODUCER PRICES -11% Y/Y (MNI)
RATINGS: Friday’s Highlights Saw Italian Outlook Move to Neutral at Moody’s, Portugal Upgraded
Sovereign rating reviews of note from after hours on Friday include:
- Fitch affirmed Lithuania at A; Outlook Stable
- Fitch affirmed Spain at A-; Outlook Stable
- Moody's affirmed Italy at Baa3, outlook changed to stable from negative
- Moody's upgraded Portugal to A3, outlook changed to stable
- S&P affirmed South Africa at BB-; Outlook Stable
- S&P affirmed Slovakia at A+; Outlook Stable
- DBRS Morningstar confirmed Lithuania at A (high), Stable Trend
- DBRS Morningstar confirmed the United Kingdom at AA, Stable Trend
FOREX: USD Weaker for Second Session, Prompting Break of Major Levels
- The USD is weaker for a second session, prompting the USD Index to step lower and through the 200-dma for the first time since December last year. The moves are helping prop up currency activity across the board, with JPY a particular focal point - futures volumes are not far off double their usual level for this time of day.
- JPY is comfortably the best performer, helping EUR/JPY ease through Friday's lows and extend the pullback off last week's highs to over 220 pips. AUD, NZD are also outperforming, with AUD/USD strength resulting in a clear break of resistance at 0.6522, the Aug 30 and Sep 1 high. The breach is an important short-term bullish development and signals scope for a continuation higher towards 0.6582.
- Equity markets are trading well headed through to the Monday open, with the e-mini S&P within range of Friday's highs and helping underpin the bid in high beta currencies. As such, NOK is slightly firmer and helping aide EUR/NOK toward first support of 11.6892.
- The data calendar is muted Monday, keeping focus on the risk events later in the week as the Thanksgiving break later in the week brings forward a number of risk events: Tuesday sees Canadian CPI & Fed minutes, while Wednesday sees UMich sentiment and weekly jobless claims.
- As such, focus will be on the speaker slate Monday, as ECB's de Cos & Villeroy, Fed's Barkin and BoE's Bailey are all set to speak.
EGBS: Core EGB Curves Twist Flatten; Peripheries Outperform
Core EGBs have drifted off intraday lows after beginning the week under pressure, while peripheries remain the outperformers after positive Italian and Portuguese ratings decisions from Moody's after hours on Friday.
- Factors that contributed to the initial weakness include the overnight uptick in crude oil futures, suggestions out of the U.S. re: an agreement on the Hamas-held Israeli hostages moving closer and ECB-speak pushing back against the idea of rate cuts through last week and this morning.
- ECB hawk Wunsch noted today that rate cut bets have the effect of loosening financial conditions, increasing "the risk that you have to correct in the other direction". Comments from Vujcic this morning were not market movers.
- Bund futures are down -0.09 ticks at 130.95, with the 20-day EMA at 130.06 the first support. OAT futures are similarly lower, while German and French cash curves are both seen twist flattening.
- Periphery spreads are tighter to Bunds with Portugal and Italy outperforming - both BTP and PGB spreads to Bunds are over 4bps narrower today. Moody's rated Italy at Baa3 (outlook stable) after hours on Friday - upgrading the outlook from negative - while Portugal saw a two-notch rating upgrade to A3 (outlook stable). The 10-year PGB/Bund spread currently trades at the tightest levels since early 2022 at 60.3bps.
- The remainder of the docket today is light, with no notable data or supply. ECB's de Cos speaks at 1300GMT and Villeroy appears after hours at the Society of Professional Economist's dinner.
GILTS: Off Lows, Fiscal Speculation vs. DMO Supply Reduction
Gilts have moved away from worst levels of the day, with bulls remaining in technical control in futures and participants likely looking to the DMO gilt issuance gap surrounding the Autumn Statement and expected adjustment lower in the gilt issuance remit at that event.
- This, coupled with a move away from session lows in wider core global futures, keeps the space underpinned, despite a closure of Friday’s opening gap higher in the contract.
- The contract last sits little changed on the day just at 97.20, ~10 ticks off the peak of its 41 tick range. Well-defined technical parameters remain some way off on both sides.
- Cash gilts sit within 1bp of Friday’s closing levels across the curve, with a light twist flattening of the curve seen.
- A quick reminder that cross-market impetus and speculation surrounding the potential for some fiscal loosening for UK households seemed to factor into early price action.
- SONIA futures last show +1.0 to -2.0 through the blues.
- Liquid BoE-dated OIS contracts are -1bp to +1bp.
- The previously flagged BoE events and scheduled APF sales covering medium-term gilts provide the scheduled domestic points of note on Monday.
EQUITIES: E-Mini S&P Contract Remains Firm and Holds Onto Last Week's Gains
A short-term bull cycle in Eurostoxx 50 futures remains intact and the contract is holding on to last week’s gains. Price has recently cleared resistance at both the 20- and 50-day EMAs - a bullish development. Note that last Tuesday’s gains resulted in a breach of resistance at 4256.00, the Oct 12 high, reinforcing the bullish theme The focus is on 4359.00, the Sep 15 high. Initial firm support to watch is at 4215.70, the 20-day EMA. S&P e-minis are unchanged and maintain a firmer tone. The contract traded sharply higher last Tuesday and is holding on to its recent gains. Resistance at 4411.88, a trendline drawn from the Jul 27 high, has been cleared. This reinforces bullish conditions and signals scope for a climb towards 4552.38, a Fibonacci retracement. On the downside, initial firm support is seen at 4400.39, the 20-day EMA.
- Japan's NIKKEI closed lower by 197.17 pts or -0.59% at 33388.03 and the TOPIX ended 18.45 pts lower or -0.77% at 2372.6.
- Elsewhere, in China the SHANGHAI closed higher by 13.954 pts or +0.46% at 3068.319 and the HANG SENG ended 323.88 pts higher or +1.86% at 17778.07.
- Across Europe, Germany's DAX trades lower by 25.84 pts or -0.16% at 15895.05, FTSE 100 lower by 11.66 pts or -0.16% at 7492.94, CAC 40 up 12.31 pts or +0.17% at 7246.72 and Euro Stoxx 50 down 6.72 pts or -0.15% at 4334.45.
- Dow Jones mini up 16 pts or +0.05% at 35030, S&P 500 mini up 3.5 pts or +0.08% at 4531.25, NASDAQ mini up 20.25 pts or +0.13% at 15916.75.
COMMODITIES: Last Week's Gains Reinforce Bullish Conditions in Gold
A bearish theme in WTI futures remains in play and short-term gains are considered corrective. The break lower last week marks an extension of the downtrend that started late September and maintains the price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position, highlighting bearish market sentiment. The focus is on $70.96, a Fibonacci retracement. Key resistance is at $79.65, the Nov 14 high. The trend condition in Gold remains bullish and recent gains reinforce this condition. Furthermore, MA studies are in a bull-mode set-up, highlighting a rising trend cycle. A stronger resumption of gains would open $2022.20, May 15 high. The bull trigger is at $2009.4, the Oct 27 high. Note that support at the 50-day EMA, at $1943.4, has been pierced. A clear break of this average would undermine the bullish theme and expose $1908.3, Oct 16 low.
- WTI Crude up $0.44 or +0.58% at $76.33
- Natural Gas down $0.06 or -2.03% at $2.901
- Gold spot down $2.02 or -0.1% at $1978.51
- Copper up $1.65 or +0.44% at $378.7
- Silver down $0.15 or -0.64% at $23.567
- Platinum up $1.6 or +0.18% at $904.61
| Date | GMT/Local | Impact | Flag | Country | Event |
| 20/11/2023 | 1630/1130 | * |  | US | US Treasury Auction Result for 13 Week Bill |
| 20/11/2023 | 1630/1130 | * | | US | US Treasury Auction Result for 26 Week Bill |
| 20/11/2023 | 1800/1300 | ** | | US | US Treasury Auction Result for 20 Year Bond |
| 20/11/2023 | 1845/1845 |  | UK | BOE's Bailey Henry Plumb Lecture | |
| 21/11/2023 | 0700/0700 | *** | | UK | Public Sector Finances |
| 21/11/2023 | 0745/0845 | * |  | FR | Retail Sales |
| 21/11/2023 | 1000/1000 | * | | UK | Index Linked Gilt Outright Auction Result |
| 21/11/2023 | 1330/0830 | *** |  | CA | CPI |
| 21/11/2023 | 1330/0830 | ** | | US | Philadelphia Fed Nonmanufacturing Index |
| 21/11/2023 | 1355/0855 | ** | | US | Redbook Retail Sales Index |
| 21/11/2023 | 1500/1000 | *** | | US | NAR existing home sales |
| 21/11/2023 | 1600/1700 |  | EU | ECB's Lagarde discusses Inflation and democracy | |
| 21/11/2023 | 1630/1130 | * | | US | US Treasury Auction Result for Cash Management Bill |
| 21/11/2023 | 1630/1130 | ** | | US | US Treasury Auction Result for 2 Year Floating Rate Note |
| 21/11/2023 | 1715/1815 | | EU | ECB's Schnabel at Wurzburg Policy Lecture | |
| 21/11/2023 | 1800/1300 | ** | | US | US Treasury Auction Result for TIPS 10 Year Note |
| 21/11/2023 | 1900/1400 | *** | | US | FOMC Rate Decision |
| 21/11/2023 | 2100/1600 | | CA | Canada fall economic/fiscal statement (release time is approximate) |