📈 Market Report.
📅 This week will start with PMI data, but the highlight will be the interest rate announcement from the Federal Reserve and the Bank of England.
🗣️ Robert Kaplan, the former president of the Dallas Fed and vice chairman of Goldman Sachs, stated that inflation already “looks a little stuck.” On the other hand, in Europe, we have statements in the same direction: “Inflation isn’t on track to fall below 2%” Latvian Governing Council member Martins Kazaks.
⬇️ Moody’s has downgraded France’s credit rating from Aa2 to Aa3, citing deteriorating public finances and an expected budget deficit above 3% of GDP in 2024. This could increase borrowing costs and prompt the government to address fiscal challenges. If France fails to implement Brussels’ centralised measures, parliament could topple the government, while European debt mechanisms could subdue it through the bond market. Last week we warned in reports that France is at a dead end.
🇬🇧 Britain’s economy experienced a second consecutive month of contraction in October, marking the first back-to-back falls since the start of the COVID-19 pandemic. GDP contracted by 0.1%, missing economists’ forecasts of a 0.1% expansion. The services sector flatlined, while manufacturing and construction output declined. The National Institute of Economic and Social Research predicts the economy will stagnate in the fourth quarter of 2024, but most forecasters believe the budget’s boost to public investment and spending will lead to faster growth in 2025. The Bank of England is unlikely to cut interest rates due to the GDP data.
🏭 British manufacturers have reported the sharpest loss of confidence since the start of the COVID-19 pandemic due to higher costs and tax increases by the new government. Make UK’s quarterly outlook survey showed manufacturers’ confidence dropped to 5.8 in Q4 2024 from 6.8 three months earlier. The group cut its forecast for manufacturing output in 2024, which it now expects to shrink by 0.2% this year. The sector is likely to expand by 0.7% in 2025, half the rate of the broader economy.
🇯🇵 Japan’s core machinery orders increased by 2.1% in October, compared to a 1.2% expected increase by economists in a Reuters poll. Year-on-year, core orders grew 5.6%, compared to a forecast of 0.7%. Manufacturers saw a 12.5% increase in core orders, while non-manufacturers saw a 1.2% decrease. The Cabinet Office remains unchanged on machinery orders for October.
🇨🇳 China’s industrial output growth increased slightly in November, but retail sales fell, indicating a need for more consumer-focused stimulus. The mixed data highlights China’s challenges in a durable economic recovery, with trade relations with the US potentially worsening under a second Trump administration and weak domestic consumption. The central bank has room to cut reserve requirements, but past easing hasn’t significantly boosted borrowing due to the ongoing property crisis. China’s top leaders have pledged to raise the budget deficit and prioritize consumption.
🚗 Another giant of the European automotive industry in the spotlight. The Italian government is willing to collaborate with Stellantis NV to secure jobs and factories in Italy, provided the company maintains these facilities. The relationship is improving after recent clashes, with additional incentives expected.
📉 Some ECB officials, like Villeroy and Panetta, say going lower still should be considered, while others like Schnabel warn against pushing too far and risking policy space. Discussions over the neutral rate are complicated, with Martin Kazaks, ECB Governing Council member, estimating it to be “closer to 2% rather than 3%”, while ECB President Lagarde has cited a range of 1.75% to 2.5%. Kazaks says he would be “very, very cautious” about going below the neutral rate, as the economy isn’t that weak and the ECB’s outlook doesn’t suggest inflation will fall short of the target for long.
📊 Market View:
📈 US futures start the week calm and below the levels reached last week. The mini S&P 500 is currently at 660 points. The Nasdaq 100 remains more bullish, trading very close to Friday’s highs, currently at 21,800 points.
💵 The dollar index retreated after the previous week’s upward sprint. From 107 points, it has declined slightly to 106.80 at present, awaiting the Fed’s interest rate announcement this week. As for the EUR/USD, which once again lost the 1.05 level last week, it has started the new week by regaining those levels.
🇪🇺 In Europe, markets remain surprisingly strong. The DAX 40 is not far from its all-time highs, currently trading at 20,405 points. The Eurostoxx 50, which momentarily managed to break above 5,000 points last week, is now close to that mark, trading at 4,960 points.
🛢️ Crude oil has rebounded again, although it seems to be on a downward trajectory, with Brent crude currently trading at 74.20 dollars. Gold, which fell more than 3.5% last week, is now trading above $2,670 per ounce.
💰 Finally, Bitcoin is off to a strong start this week, surpassing $100,000 and reaching a new all-time high of $106,500.
🌍 Geopolitics:
🇪🇺 European Union nations will discuss preparations for the winter as the gas transit agreement between Russia and Ukraine is set to expire on December 31st. The European Commission has assessed that the termination of the Russia-Ukraine transit deal will have a “negligible” impact on gas supplies, as the region has found alternative sources like LNG. However, gas buyers from Slovakia and Hungary are continuing negotiations to keep gas flowing after the transit deal expires, proposing a swap deal between Azerbaijan and Russia.
🔍 Criticism of the European Commission’s management continues to emerge. Austrian MEP Harald Vilimsky is sharply critical of the European Commission: ‘We reject this Commission because it stands for mass migration, deprivation of liberty, warmongering, deindustrialisation and the decline of Europe”.
📰 Interesting fact: The new US and Israeli-backed Syrian leader was a prominent member of Al Nusra, ISIS and Al Qaeda. The media have rebranded these armed groups as ‘moderate rebels’ to avoid public outrage.
