KBC Sunset Market Commentary 25/11/2024 via Trader Talent

KBC Sunset

Monday, November 25, 2024

Daily Market Overview

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Markets

• Trump’s pick for the US Treasury Secretary triggered a relief rally in the bond market. Scott Bessent brought a catchy 3-3-3 pitch: reduce the government deficit to 3% of GDP, aim for 3% growth and pump up an additional 3 million barrels a day. He favours tariffs and the tax cuts the president-elect plans to push through. But he’s a bit more a moderate voice compared to some of the hardliners in Trump 2.0. Markets expect Bessent to soften some of the sharpest edges of Trump’s America First strategy for the sake of financial and macro stability. In absence of a lot of other major news, it served as a perfect trigger for some short-term consolidation that even might morph into a correction following the blistering yields’ rally since mid-September. US rates ease between 7 and 10 bps in a bull flattening move. German Bunds slightly underperform after Friday’s post-PMI surge. A cautious yield recovery attempt ended in tears nonetheless, especially at the long end of the curve. The 30-yr drops 5 bps. The 2-yr tenor adds about 2 bps. The technical charts offered some help with the 2% support cracking but for the time being surviving. Given what’s priced in for the ECB terminal rate (<1.75%) this level should hold theoretically though there are clear risks for a break lower. Sentiment on stock markets is constructive. The likes of the EuroStoxx50 add a modest 0.3% and Wall Street opens with gains between 0.8-1%. It’s a boon to the euro, which hit a 2-yr low against the dollar just before the weekend. EUR/USD bounced back from 1.043 to 1.052. It’s as much euro strength as dollar weakness though. The trade-weighted greenback slid below 107 (106.64), USD/JPY marches south (153.78). Oil on commodity markets slides to $73.9 per barrel. European natural gas (Dutch TTF) prices rise about 3%, closing in on the €50 mark (per MWh) for the first time in over a year and underscoring once again the loss cheap energy as a competitive advantage. A cold snap is expected for the second part of this week, prompting speculation for higher demand at a time when Europe already tapped earlier than usual in its inventories.

News & Views

• Overall confidence in the Czech economy increased in November. The composite indicator (consumer & business confidence) rose from 96.8 to 98 (vs 96.6 consensus), matching its best level since June 2022. Both consumer (101.6 from 100.7; 6-month high) and business confidence (97.3 from 96; 5-month high) contributed to the improvement. The number of consumers who do not plan to make large purchases in the next 12 months has decreased. Households' concerns about an increase in unemployment over the next year have decreased slightly as well. In contrast, the number of households concerned about further price increases has increased. Details of the business survey showed a mixed picture. Improvements in construction, trade and selected services was partly offset by a weakening in industry confidence. Especially the share of respondents expecting an increase in the pace of production activity in the next three months fell significantly. CZ markets didn’t respond to the release. The Czech krone keeps trading on the weak side (EUR/CZK 25.30) with tighter financial conditions in the US, the proximity to war in Ukraine, a struggling German economy and increasing gas prices all contributing.

• The Hungarian government announced that minimum wage will increase by 9% next year, followed by 13% and 14% increases in 2026 and 2027. PM Orban hopes to revive the economy in the run-up to general elections in 2026. They aim to keep workers from seeking employment abroad and are based on a scenario where economic growth and productivity increase hand-in-hand. The government, labour unions and employers agreed to review the wage hike target should key indicators for growth and especially inflation miss government forecasts. MNB vice-governor Virag already warned against boosting growth at the cost of higher inflation. The forint today rebounds off YTD lows, from EUR/HUF 412.50 to 409.50.