KBC Sunset Market Commentary 29/11/2024 via Trader Talent

Daily Market Overview

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Markets

•          An empty US calendar allowed US investors to focus on Black Friday shopping rather than on markets. Still, the data-idle Thanksgiving/Black Friday combo didn’t halt the correction on the Trump trade developing since end last week. US yields cede an additional 4.8 bps (2-y) to 7 bps (10-y). Trump trade or no Trump trade, US equities stay well supported. Today, gains are modest, but the S&P 500 is again testing its all-time record. In Europe, the calendar was well-packed with EMU November flash CPI taking center stage. Higher (than expected) Italian inflation mitigated softer data for German and France. The result for the EMU Flash CPI was close to expectations. Headline inflation was reported at -0.3% M/M and 2.3% Y/Y. Core inflation stabilized at 2.7% Y/Y. Services inflation decreased a lofty -0.9% M/M, easing the Y/Y measures from 4% to 3.9%. Aside from the EMU flash CPI, the ECB published its monthly consumer expectations survey, including expectations on inflation. European consumers see inflation slightly higher over the next 12 months than in the previous survey (2.5% from 2.4%), but 3-y inflation expectations were unchanged close to the ECB target (2.1%). European consumer expectations on the economy and on their personal (financial) situation mostly deteriorated slightly and basically indicated a context of stagnation, at best. European consumers expect a further slowdown in their income growth (1.1%) but nevertheless see spending slightly higher in the next 12 months (3.3%). Economic activity is expected to contract even further (-1.1%) even as unemployment is expected to ease slightly to 10.4 (from 10.6%). As was the case over the previous days, the market reaction to EMU data was guarded. However, even with plenty of ECB easing discounted (depo < 1.75% H2 2025) it contained no trigger to change the long-drawn downtrend in yields. German yields today cede between 2-3 bps across the curve. The German 2-y yield is drifting below the 2% handle. The German 10-y yield in coming ever closer (2.1%). Bank de France governor Villeroy used the EMU inflation data to reiterate his case that inflation is now on path to reach target probably in H1 2025. 10-y spreads of France over Germany are holding in the 83 bps area, as markets await whether/how many concessions French Fin Min Antoine Armand is prepared to do to get the support of the opposition (RN). Despite the further correction in US yields, the dollar is going nowhere today. DXY trades marginally softer at 105.95. EUR/USD is changing hands near 1.055, with the intraday momentum tilting south again. Yen outperformance continues (USD/JPY 150), but this yen gain was already released in Asan trading this morning as higher than expected Tokyo CPI data kept the debate alive on a December BoJ rate hike.

 

News & Views

•          The Czech statistical office published details of the third quarter GDP figure, which was upwardly revised from 0.3% Q/Q to 0.4% Q/Q with the annual figure confirmed at 1.3% Y/Y. On the demand side, growing final consumption expenditure of households (+0.5% Q/Q & 2.5% Y/Y) and change in inventories were the main drivers behind Q/Q-growth. Gross fixed capital formation (-1.2% Q/Q & -0.8% Y/Y) and external demand had a negative influence. Exports increased by 1.9% Q/Q (4% Y/Y) while imports rose by 3.2% Q/Q (3.4% Y/Y). The third quarter GDP deflator rose by 3.9% Y/Y while the volume of labour costs increased by 6.5% Y/Y. Total employment remained unchanged to be 0.4% higher compared with Q3 2023. EUR/CZK remains locked in a tight range since the start of October (25.20-25.40), held hostage mainly by unfavorable global developments.

•          Swedish GDP increased by 0.3% Q/Q in Q3 2024, significantly beating market consensus of a 0.1% quarterly drop. Q2 GDP figures faced an upward revision as well, from -0.3% Q/Q to flat. In annual terms, GDP grew 0.7%, up from 0.4% in Q2. There’s more than meets the eye though. The upturn is mainly explained by changes in inventories (buildup of industrial inventories) while net exports contributed negatively (0.5 ppt, driven mainly by weak net exports of goods). Consumption was unchanged on the quarter with government spending (+0.4% Q/Q) and gross fixed capital formation (+0.3% Q/Q) increasing. Household real disposable income rose by 1.8% Q/Q while the total number of employed persons decreased by 0.2% Q/Q. The Swedish krone (EUR/SEK 11.52) didn’t respond to the numbers. They don’t alter the aggressive easing approach of the Riksbank which is expected to lower its policy rate by another 25 bps (to 2.50%) in December.
 

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