KBC Sunset Market Commentary 09/12/2024 via Trader Talent

Daily Market Overview

Click here  to read the PDF-version of this report
 

Markets

•          The Chinese Politburo’s announcement around the end of Asian dealings and the beginning of European ones was quite an opener of the trading week. Led by president Xi Jinping, the country’s top leaders signaled bolder support for next year. The “extraordinary countercyclical” measures included, amongst others, a change in the monetary policy stance from “prudent” to “moderately loose”. In a sign of its importance, such a shift hasn’t happened since 2011. It may be the prelude to big rate cuts and asset buying. The Politburo also embraces a more proactive fiscal stance and promised to “forcefully lift consumption” and drive domestic consumption “in all aspects”. The news follows this morning’s inflation numbers that highlighted once again the ongoing economic swamp China is trapped in. It also immediately raises the stakes (and hopes) for Wednesday’s larger Central Economic Work Conference. This is where leaders discuss next year’s growth target as well as the strategies to reach it. Chinese bourses enjoyed a late-session boost and helped European equities overcome geopolitical (Syria) concerns. Wall Street opens mixed with tech underperforming on another, less market-positive Chinese decision to launch a monopoly probe into Nvidia over a 2020 deal. The yuan is cautiously optimistic, gaining towards USD/CNY 7.262. Being major trading partners to China, the Australian and kiwi dollar benefit from the stimulus announcement as well. Other G10 currency crosses show little changes, the JPY being the underperforming exception (USD/JPY 151.9). EUR/USD ekes out a small gain towards but below 1.06 as markets await Wednesday’s final input for the Fed meeting next week (CPI) and Thursday’s ECB policy meeting. The Australian, Canadian, Swiss and Brazilian central banks all gather too. Core bonds show no clear direction. Bunds marginally underperform US Treasuries with yield changes varying between flat and -1.8 bps across the curve. US rates rise no more than 2 bps.
 

News & Views

•           Industrial production in the Czech republic in October decreased -0.7% m/m in real terms. The Y/Y measure dropped from 1.6% to -2.1%. The Czech Statistical Office commented that the yearly decline was negatively affected by a higher yearly comparison base for some key components, including manufacturing of transport equipment and of motor vehicles. Positive contributions were reported in fabricated metal products and food products. Orders data (current prices) showed a slightly better, but still subdued picture. Orders decreased by 0.5% M/M but were 2.0% higher Y/Y. Non-domestic orders increased by 3.1% Y/Y. Domestic orders grew 0.2%. The average registered number of employees in industry October was also 2.0% lower compared to the same month last year. A bit different from today’s modest supply-side data, better retail sales and higher than expected wage growth data last week suggested a further improvement in consumer demand. These data supported recent CNB ‘guidance’ that a pauze in its rate cut cycle might occur soon. December inflation to be released tomorrow is a final key input for the CNB policy meeting on Dec 19. Today, CNB’s Kubekova indicated CNB is more concerned about an slight increase in inflation than a ST deflationary development. She will decide between a further rate reduction an stability and wait for the full-year data to get a better picture. The koruna recently improved from the EUR/CZK 25.45/40 area to trade near 25.09, with the 25.00 area first key support (CZK resistance) on the technical charts.
•          A survey of the UK Recruitment & Employment confederation and KMPG compiled by S&P global signaled a further deterioration of the UK labour market conditions during November. Permanent placements continued to decline, this time at the steepest pace since August 2023. Firms were reassessing staffing needs and put a pause on recruitment activity as they considered the impact of the late October government budget. Salary growth remained modest and was little changed on October's 44-month low. Demand for staff also declined at the fastest since August 2020, whilst overall staff availability continued to rise amid reports of increased redundancies. KPMG’s Jon Holt said downward pressure on wage inflation will be encouraging for BoE ahead of this month’s meeting, although it may not be enough to counter wider inflationary pressures in the economy. ‘However, the prospect of further rate cuts through 2025, alongside the Government’s investment plans, both point to improved growth in the near term. This should give businesses greater confidence which may help stabilise the labour market.’     
 

Graphs

Table

Contacts