Sunset Market Commentary

Markets

European markets this morning kept a soft approach. Lower yields at that time still were the path of least resistance. Eco data were few. The ECB in its financial stability report warned that stability in the euro area remains fragile as tighter financial conditions are testing the resilience of euro area firms, households and sovereigns. Financial markets and non-banks are vulnerable to adverse macro-economic surprises. For now higher rates underpinned bank profitability, but worsening asset quality and higher funding costs pose headwinds. In this respect, macroprudential policies should help to maintain resilience of the financial systems. The ECB also warned that it is key for the European Union to bring clarity on new fiscal rules as this is important to reduce uncertainty. The report didn’t bring any new guidance on monetary policy, but markets maybe saw growing risks as a potential reason for the ECB to take a more cautious approach going forward. Whatever the reason, German yields ceded up to 5 bps at the long end of the curve. Bond market momentum slowed after the publication of the US data. Weekly jobless claims again reversed an uptick over the previous weeks returning to 209k from 233k. October durable goods orders (-5.4%) dropped slightly more than expected after a strong September print, but core measures and shipments as expected stabilized. Still US yields reversed part of an earlier decline and currently show intraday changes between +1.5 bps (2-y) and -2.5 bp(30-y). The US 10-y yield is nearing the 4.34% support (38% retracement April-Oct rebound, currently 4.375). US data also temporary blocked the rally in Bunds, but German yields currently trade between 0.5 bps (2-y) and 5 bps (30-y) lower. The German 10-y yield came close to the 2.5% barrier, but a real test was avoided (currently 2.53%), at least for now. After a pause earlier this week, European equities resume their rebound (EuroStoxx 50 +0.6%). US indices also open in positive territory (S&P +0,6%). However volumes might decline as US investors look forward to the Thanksgiving Holiday/a Black Friday long weekend. Oil tumbled sharply lower from the $82.5/b area (Brent) to currently trade near $79/b as OPEC+ delayed meetings for this weekend (cf infra).

On FX markets, the dollar rebounded despite a constructive risk sentiment and some easing of geopolitical tensions (short truce in the Israel-Hamas conflict). DXY trades near 104 (from about 103.6). EUR/USD struggles to hold near the 1.09 big figure (1.089). USD/JPY extends yesterday’s turn north trading at 149.3 from 148.40. EUR/GBP is going nowhere, hovering near the 0.87 big figure. UK finance minister Hunt in his Autumn Statement, amongst others, announced an 2ppt cut in the rate of contributions of employees to the National Security system and made incentives for business investment permanent, which the government says can increase investment by £20bn/year. Even so, the 2024 growth outlook was reduced to 0.7% from 1.8% in the OBR march forecast.

News & Views

OPEC+ announced that it will postpone its Joint Ministerial Monitoring Committee (JMMC) from 25 and 26 November to Thursday 30 November. Rumours suggest growing disagreement over Saudi-led production cuts. That was already the case for several African nations at the previous ministerial meeting in June. Russian deputy PM Novak today said that current oil prices are at a fairly good level. Saudi Arabia on the other hand is looking for higher prices to compensate for weaker global demand. OPEC+ members need to be careful not to misread the Saudi reaction function. It’s in their own interest that the Kingdom doesn’t return to full capacity. Brent crude prices faced a big setback today over the growing unease between OPEC+ member with price/barrel dropping by $3 to $79.

Polish consumer confidence improved further from -17.9 to -15.1 and extending the run of consecutive increases to 11 months. The indicator stands at its best level since September 2021. Both the current assessment and 12 months forward looking component improved for financial conditions and for the general economic situation in Poland. October retail sales at constant prices rose by 2.8% Y/Y (from 0.7% in October and vs 1.7% forecast). In the period January-October 2023 sales decreased by 2.6% vs 6% growth in 2022. The Polish zloty holds strong below the previous YTD low at 4.40 broken last week. Current levels around 4.36 were last seen early 2020.