KBC Sunset Market Commentary 06/12/2024 via Trader Talent

KBC Sunset

Friday, December 6, 2024

Daily Market Overview

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Markets

• In the absence of important eco data and no new market moving political developments (in France or elsewhere), European market enjoyed a brief pauze after recent swings. European traders simply joined the countdown to the US payrolls which, alongside the November CPI data scheduled for next week, were supposed to provide last key input for the Fed December 18 policy meeting. After last months’ near-stagnation, mainly driven by hurricanes and strikes, US job growth rebounded by a close-to-expectations 227k. However, data from the previous two months also were upwardly revised by a net 56k. Goods producing sectors added 34k. Private services jobs grew 160k. Wage growth also was slightly stronger than expected with average hourly earnings at 0.4% M/M and 4.0% Y/Y. However evidence from the separate consumer survey was far less inspiring. With a 193k decline in the workforce, a 355k decline in employment, a rise in the unemployment rate from 4.1% to 4.2% and a decline in the participation rate from 62.6% to 62.5%.

Markets apparently focused more on the content of the consumer survey and see the rise in the unemployment rate as supporting the case for an additional 25 bps rate cut at the December meeting. US yields in a ‘logical’ steepening move decline between 6.5 bps (2-y) and 2.5 bps (30-y). Money markets raised the expectations for a 25 bps December Fed cut to almost 90%, from about 70% yesterday evening. German/EMU yields fell prey to modest spill-over effects from what happened in US and switched small gains for small losses. German yields currently decline between 3.0 bps (2-y) and 2.5 bps (10-y). EUR/USD briefly jumped well north of to the 1.06 (top near 1.0630) but were almost immediately undone with the pair currently again trading near unchanged levels (1.0585 area). The yen again outperforms with USD/JPY breaking further below the 150 mark (149.5). Equities apparently feel OK with the ‘confirmation’ that there is room for gradual further Fed easing. The S&P (+0.35%) is touching a new all-time record. The EuroStoxx 50 also enjoys the (relative political) calm, adding 0.45%.

News & Views

• Hungary’s Orban has threatened vetoing the European Union’s next long-term budget if the European Commission does not distribute the some €20bn EU funds it is withholding over concerns related to the rule of law. The Hungarian president said that “the funds we don’t receive in 2025 and 2026 we’ll have to receive in 2027 and 2028” or he will torpedo the seven-year budget that outlines EU spending from 2028. Not having access to these resources was among the reasons for rating agency Moody’s to cut the outlook for Hungary’s credit rating last week. Hungary is marching towards parliamentary elections in 2026 and Orban’s party is trailing the pro-EU opposition party Tisza. Copy pasting the 2022 script with huge spending is given overstretched public finances a no-go. Sticking to the budget, Hungary’s AKK released its 2025 financing plan today. Gross bond issuance amounts to HUF 12.838bn. HUF 4123bn is needed to plug the cash deficit with the remaining part consisting of maturities (HUF 8043 bn) and switches and buybacks. Funding relies more heavily on the HUF institutional market next year, with HUF 3992 bn planned in HGB auction issuance. The AKK plans to issue HUF 200 bn in green bonds. It keeps the 30% upper bound on the share of FX debt for 2025. An international FX bond with a volume of up to €2.5bn is planned for the first half. This will include a €1bn green Eurobond and Chinese yuan-denominated panda bonds. The forint today again underperformed other regional currencies, probably on the ongoing rift between PM Orban and the EU.

• Canadian employment grew 50.5k in November, double the 25k expected and picking up from the 14.5k in October. Employment gains were concentrated in full-time work (+54k). The bulk comes on the account of the public sector (45k), offsetting the meaning of the headline beat. The unemployment rate rose to the highest level since September 2021 (6.6%) though came together with an uptick in the participation rate to 65.1%. The employment rate steadied after falling for six months at 60.6%. The hourly wage rate missed the bar sharply, 3.9% vs 4.7% expected and down from 4.9%. The Canadian dollar loses ground against the US dollar, which just suffered a minor setback from the US Payrolls as well. USD/CAD trades around 1.409. The market-implied probability for a back-to-back 50 bps rate cut at the December 11 Bank of Canada meeting rose to 80% after the report.