Market Report.
🇬🇧 We start the day with macro data from the United Kingdom, released just ahead of tomorrow’s Bank of England interest‑rate decision.
📉 Annualised inflation has fallen to 3.2%, below the 3.5% expected. This marks the second consecutive monthly decline — down from 3.6% last month and 3.8% the month before. The UK still holds the highest inflation rate in the G7.
🏭 Producer Price Index (PPI) data, however, came in above expectations, rising 0.3% versus the 0.2% forecast and up from 0.0% previously. As PPI is typically seen as a pre‑inflationary indicator, this latest reading introduces a mixed signal.
💱 Overall, these figures help pave the way for the Bank of England to soften interest rates, following the direction recently taken by the Federal Reserve. So the most probable scenario is a cut interest rates by a quarter point to 3.75% on December 18.
👷 Data from the British labor market points in the same direction. Britain’s unemployment rate hit its highest level since the start of 2021 in the run-up to Finance Minister Rachel Reeves’ annual budget last month. Private sector pay growth was the weakest in nearly five years, reinforcing the chances that the Bank of England will cut interest rates on Thursday to help the stagnant economy.
📈 The jobless rate edged up to 5.1% in the three months to October, while private-sector pay growth, excluding bonuses, slowed to 3.9% from 4.2%.
🧑🏭 Speaking of the labour market, yesterday we also had US data in this area.
🇺🇸 The U.S. nonfarm payrolls grew slightly more than expected in November, adding 64,000 jobs, but slumped in October with a decline of 105,000 jobs. The unemployment rate rose to 4.6% in November, the highest level since September 2021, and the broader U-6 measure of unemployment hit 8.7%, the peak since August 2021.
📉 The jobs climate continues to be one of low hiring and low firing, affected by stringent border practices under President Trump that have drained the workforce. Average hourly earnings rose just 0.1% in November, well below expectations, indicating inflation pressure remains subdued in the labor market. This is also good for maintaining the Fed’s stimulus strategy.
🏦 And back to the central banks, do not forget that tomorrow we will have the decision of Rates of the BoE, but also the ECB. In addition, on Friday we will learn about the BoJ’s rate decision.
💶 The European Central Bank (ECB) will leave interest rates unchanged on December 18 and keep them there through next year, according to a majority of economists polled by Reuters. Euro zone inflation rose to 2.2% in November, but has remained well-anchored around the ECB’s 2% goal so far this year. The economy also grew close to 1.5% on average in the past two quarters.
🔒 ECB Governing Council members have supported the view that there are no urgent reasons to adjust policy rates in the near term. Our position has been clear for months, the ECB will not cut rates anymore, because it can’t. It has reached its limits, if it applies more cuts, the interest rate in Europe will fall below inflation, causing negative real interest rates, discouraging saving in the region.
🇯🇵 Regarding Japan, the Bank of Japan (BOJ) is expected to proceed with a 25-basis-point interest rate hike to 0.75% at its December 18-19 meeting, according to a strong majority of economists polled by Reuters. The BOJ is likely to raise borrowing costs to at least 1% by the end of September 2024, with the median prediction for the end-2026 rate being 1.00%.
📈 The decision to raise rates is seen as the BOJ’s first rate hike since January, with the Japanese government expected to tolerate such a move given the risks of inflation and a weak yen. Once again, the only concerns are the government’s fiscal policy and the potential moderation of wage growth going forward.
🛢️ U.S. President Donald Trump has designated the Venezuelan government as a “foreign terrorist organization” and ordered a “complete and total” blockade of sanctioned oil tankers moving in and out of the country. Trump claimed Venezuela is “completely surrounded by the largest Armada ever assembled in the History of South America” and that the blockade will be a “shock to them like nothing they have ever seen before.”
🇻🇪 Venezuela has labeled Trump’s statement as “grotesque” and said the blockade violates international law, free trade, and free navigation, calling it “absolutely irrational.”
📉 The blockade could affect 800,000 to 900,000 barrels of oil per day, potentially increasing prices by $2-$3 per barrel, though the global oil surplus would still leave the world “well supplied.”
⚖️ The Trump administration also has threatened retaliation against the European Union in response to efforts to tax American tech companies. The U.S. Trade Representative’s office singled out several prominent companies, including Accenture, Siemens, and Spotify, as possible targets for new restrictions or fees.
⚠️ The U.S. warned that if the EU continues to “restrict, limit, and deter the competitiveness of U.S. service providers through discriminatory means”, the U.S. will use “every tool at its disposal to counter these unreasonable measures.”
🛑 In fact, Trump seems to have taken a definitive action in this regard, as a warning to the EU. The US has now paused or suspended implementation of the US-UK “Tech Prosperity Deal”, effectively freezing its rollout, amid broader disagreements with the UK over digital regulation, online speech rules, and trade issues. The Tech Prosperity Deal is a roughly $40 billion technology agreement between the US and UK, covering cooperation and investment in areas like AI, quantum computing, and civil nuclear technology.
💬 US Vice President JD Vance has openly criticized the state’s censorship of citizens in both the UK and Europe, so the measure also has political tints.
💻 Digital services taxes targeting the revenue of big technology companies have emerged as a major point of contention in President Trump’s efforts to reshape global trade rules. Trump has long argued that these taxes are discriminatory against U.S. tech giants like Amazon, Google, and Facebook. During his first term, he threatened to use tariffs to punish countries imposing digital taxes.
🧾 Digital services taxes are levies on the revenue that tech companies generate from users in a particular country, from activities like targeted online advertising, streaming, and data sales.
🪙 Bitcoin seems to continue weakening, with a drop of more than 30% from its October highs, despite a broadly positive macro and regulatory backdrop for crypto. This contrasts with earlier down years for Bitcoin that were directly tied to major scandals or systemic crises in the crypto industry, such as the Mt. Gox collapse in 2014 and the FTX implosion in 2022.
📉 The current market context is unusually supportive, with increased institutional adoption, clearer regulatory frameworks, and a crypto-friendly Trump administration, including support for Bitcoin ETFs and stablecoin legislation.
🤖 We warned, in our participation of the London Finance Magnates in November, that the Chinese AI industry could overtake the US, as well as their electric vehicle industry. Well, it’s starting.
📈 MetaX Integrated Circuits Shanghai Co., a Chinese chipmaker that produces graphics processing units (GPUs) for AI applications, soared as much as 755% in its first day of trading on the Shanghai stock exchange. The company raised $585.8 million in its IPO, making it the latest outsized debut by a Chinese chipmaker after similar gains by Moore Threads Technology Co. earlier this month.
🔧 Investors are betting on these domestic Chinese chipmakers as potential competitors to global leader Nvidia, whose most advanced chips are blocked from being sold to China.
🚗 And since we mentioned electric vehicles, yesterday, Tesla, the mother of this industry, reached historical highs, after the announcement about the launch of its first RoboTaxis. Tesla’s market cap has climbed to $1.63 trillion, making it the seventh-most valuable publicly traded company, ahead of Broadcom.
Market View.
📉 US futures remain reluctant to push higher, but they are not giving up ground either. S&P 500 futures continue to trade around 6,865 points, while the weaker Nasdaq 100 futures hold near 25,425 points.
💵 The US Dollar Index (DXY), which lost the 98 level during yesterday’s session, has rebounded sharply in recent hours and now sits above 98.60. This has triggered a strong reversal in EUR/USD: after reaching 1.18 yesterday, the pair has turned sharply lower and is now trading close to 1.17.
🇪🇺 In Europe, DAX 40 futures remain unchanged since yesterday at around 24,160 points, while Euro Stoxx 50 futures trade near 5,745 points.
🛢️ Crude oil is rebounding following President Trump’s newly announced sanctions on Venezuela, but the move is also influenced by a key technical level: Brent has bounced from the $59 support, now trading around $59.70 in spot markets.
🥇 Gold futures remain firm, holding near $4,350 per ounce.
🪙 Bitcoin continues to show weakness. Yesterday it failed once again to break above $88,000, falling back to around $86,850.
