Markets:

Core bonds resumed their selling trend which started at the end of November and was only interrupted by Tuesday’s surge on hawkish trade comments by US President Trump. It’s the path of least resistance for bonds these days with European risk sentiment still positive and oil prices continuing their uptrend anticipating the outcome of the OPEC meeting (extension of production cuts which end in March 2020). Brent crude surge the past two sessions from $61/barrel to $64/barrel. From a data point of view, US weekly jobless claims – lowest level since April – filled the void between key ADP & non-manufacturing ISM on Wednesday and payrolls tomorrow. Weak German factory orders couldn’t lift Bunds at the start of trading. The German yield curve bear flattened with yields rising by 0.8 bps (2-yr) to 2.8 bps (30-yr). 10-yr yield spread changes vs Germany widen marginally with Greece (-4 bps) outperforming and Italy (+5 bps) underperforming. US yields rise by 2.4 bps (2-yr) and 3.6 bps (10-yr).

The story on FX markets isn’t more enticing. EUR/USD very gently approaches the 1.11 barrier. The dollar actually loses ground overall. Yesterday, the trade weighted greenback fell below the 97.68 neckline of short term double top formation, clearing the pay for the stronger 97 support area. USD/JPY slightly profits from risk sentiment, changing hands in the high 108-area. The Japanese currency failed to profit from PM Abe’s fiscal stimulus package, announced this morning. Sterling manages to hold the ground gained in yesterday’s impressive rally. EUR/GBP hovers around 0.8450, the lowest level since 2017, anticipating a Conservative victory at next week’s elections.

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The November payrolls in the US are this week’s apex. The largest strike in more than 10 years impacted the October growth figure by 48 000 jobs. That led to well below-average 128 000 new jobs. Consensus expects US businesses to have created 185 000 jobs in November. This includes an obvious boost in the manufacturing payrolls of 50 000 after the GM strike ended by the end of October. Given the malaise in the sector (see Monday’s disappointing ISM at 48.1), risks are that the positive GM impact is offset more than expected by job cuts in the rest of the manufacturing area. Private service-providing is expected to add 139 000 jobs. Retail trade and leisure & hospitality have been the strongholds in services job creation. We expect the latter to retreat after an exceptionally strong October, adding further to downside risks. Lastly, Wednesday’s ADP job report missed estimates. Although there’s no one-on-one correlation with the official payrolls report, the margin of the miss (67 000 vs. 135 000) should not be ignored.

News Headlines:

German factory orders resumed their slide and decreased 0.4% (M/M) in October; far below the expected 0.4% growth. The weak number casts a shadow over the euro area’s largest economy and pour cold water over hopes that the country’s manufacturing slump might be over. Falling domestic (-3.2%) and non-eurozone (-4.1%) demand were the main drags on October’s new orders.

US jobless claims unexpectedly (consensus at 215K) fell to 203K in the week ended November 30, its lowest reading in 7 months. The slide in claims hints consumer spending should continue to hold up and bolster the broader US expansion. The trade front looks less upbeat. Although the trade deficit narrowed and was lower than expected, details show that both imports (-1.7% M/M) and exports (-0.2% M/M) fell.

OPEC and its allies led by Russia are expected to curb oil supply of 1.2mln barrels per day by more than 400,000 bpd aiming to prop up prices and prevent a glut in 2020, Reuters  and Bloomberg reported citing OPEC+ sources. The Joint Ministerial Monitoring Committee is said to be considering a quota cut of 500,000 bpd. Oil prices are edging up ahead of the OPEC+ meeting in Vienna later today.

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