Sunset Market Commentary

Markets

US investors today for the first time in a long while could prepare for, admittedly flawed, first class official US data guiding trading, including challenging their assessment on Fed policy. (Outdated) US September payrolls data were the actor in case. After the October 29 hawkish Fed rate cut, US bond yields ahead of the report had arrived near the topside of short-term trading ranges (10-y 4.05%/4.16%; 2-y 3.52%/3.63%). At least a big minority of Fed governors in the meantime indicated great cautions/reluctance to ‘unconditionally’ further bring the policy rate to a neutral level. Inflation was still expected to stay above the target for quite some time to come while visibility on the heath of the labour market was low with few really alarming indications. US money markets had reduced the probability of a December rate cut to 25-30% in the run-up to the payrolls release. Unfortunately for markets, the first report in two months and a halve didn’t bring clear message for the December 10 policy meeting. The US economy in September added a stronger than expected 119k jobs (was -4k in August). The unemployment rate rose from 4.3% to 4.4%, but this was mainly due to a rise in the labour force/participation rate. Wage data (AHE 0.2% M/M and 3.8%) was very close to expectations. This also applies to the restart of the publication of (more timely) weekly jobless claims (220k week ended Nov 15). The reports won’t force highly divided FOMC members toward some kind of consensus view. As an illustration, Cleveland Fed president Hammack (one of the Hawkish members) repeated that cutting interest rates now risks prolonging this period of inflation and could encourage risk taking in financial markets. US yields in hesitant trading ceded 1-3 bps across the curve in minor steepening move. Little spill-over effects from the US data to European yields’ markets. German yields continue cautiously grinding north (2-y + 1 bp, 30-y +3 bps). A mildly positive US jobs report also supports the ‘post-Nvidia’ equity rebound as a big positive earnings surprise released after the close of the US markets yesterday eased fears on an ‘AI-bubble’. The EuroStoxx 50 after recent correction regains 1.2%. The US equities open between 1.2% (Dow) and 2.0% (Nasdaq) higher.

On FX, the dollar is shifting into a lower gear after yesterday’s (partially USD/JPY inspired) rally on a positive risk sentiment and a still open debate on December Fed easing. DXY at 100.1 holds near the 100.25/36 resistance/ST highs. EUR/USD (1.154) stays north of the 1.15 big figure, but the picture remains a bit unconvincing. The yen (USD/JPY 157.5) and Japanese bonds remain in the defensive as the government is preparing a JPY 21.3 trillion ($ 135 bln) stimulus package, raising further questions on fiscal sustainability (but to some extent also on room for the BOJ to further normalize policy). Sterling regains modest ground with EUR/GBP testing the 0.88 barrier as markets are looking forward to further details on next week’s budget.

News & Views

The Norges Bank released its quarterly expectations survey (Q4) in which it questions economists, social partners, business leaders and households. Economists and social partners expect goods and services inflation 12 months ahead to be 2.8% (from 2.8% & 2.7%). Business leaders and households expect stronger short term price pressure at respectively 3.7% (from 4%) and 3.9% (unchanged). Expected annual wage growth is seen in the 4%-4.5% range (from 4.3%-4.4%) with the exception of households who estimate it lower at 2.9% (from 3.2%). 31.7% of business leaders expect profitability of their own company to improve over the next 12 months (30.3% in Q3 survey), 37.8% expects it to remain unchanged (from 38.2%) and 27.6% sees it weakening (from 28.8%). Today’s survey won’t alter the Norwegian central bank’s plans to implement a long rate pause at the current 4%. Norwegian money markets only discount a 37% probability of a 25 bps rate cut between now and the end of Q1 2026. EUR/NOK is going nowhere at 11.73.

• Belgian consumer confidence climbed further in November, hitting the highest level since October 2021 (2 from 0). All indicators signaled an improvement. At the aggregate level, there was a slight improvement in expectations concerning the economic situation in Belgium (-26 from -27), and in addition, a continued weakening of fears about unemployment (-10 from -6), following the sharp decline seen in October. On a personal level, households are more optimistic about their own financial situation (0 from -2), and their expectations about their capacity to save hit a new peak for the year (26 from 23). Belgian business confidence will be published next Monday.