Sunset Market Commentary

Markets

Gold grabbed most headlines today. The price of bullion spiked to an all-time high in illiquid Asian dealings of $2130/ounce. The spike didn’t last with gold prices falling back towards Friday’s closing levels near $2060/ounce. The move smells like an exhaustion move after the October/November core bond rally pushed gold prices up by around 15%. A quick look at the bitcoin graph (+5% today; +60% since early October; highest since April 2022) also suggests that the air is becoming thin. US Treasuries for the first time show some tentative signs of topping off. US yields add 4.5 bps (30-yr) to 9.7 bps (2-yr). Investors are chewing on Fed Chair Powell’s comments Friday in absence of eco data. He pushed back against premature rate cut bets though his warning initially fell on deaf ears, being overtaken by a weak manufacturing ISM. We don’t draw firm conclusions yet though as it will be tough sailing this week with US non-manufacturing ISM, JOLTS job openings, ADP employment and official payrolls all scheduled for release. We still need first evidence that Treasuries no longer rally on weak (or in line with consensus) data or sell-off on better figures. UK Gilts underperformed Bunds and Treasuries the past weeks with the topping off pattern being strengthened today. UK gilt yields add 3 bps (30-yr) to 5.1 bps (5-yr). Collective action by BoE members succeeded in convincing markets that a BoE rate cut won’t arrive in H1 2024. Sterling no longer profits today with EUR/GBP steady around 0.8580. GBP/USD loses a big figure at 1.2620. German Bunds are exception to the rule with Bund yields ceding another 1.5 bps (2-yr) to 4.8 bps (30-yr). There’s no specific outperformance of French OAT’s after they dodged a possible credit rating cut by S&P. The outlook on the AA rating remains negative though. EUR/USD can’t defy the gravity law, testing last week’s low around 1.0830. Risk sentiment starts the week a little heavy with main European indices mixed and key US gauges opening on the backfoot (Nasdaq up to 1% lower).

News & Views

Swiss inflation slowed more than expected in November. Prices fell by 0.2% M/M slowing the Y/Y measure from 1.7% to 1.4%. Core inflation eased from 1.5% Y/Y to 1.4%. Price decreases were broad-based, especially in the goods sector, with housing rental costs (+1.1% M/M and 2.4% Y/Y) the exception to the global trend. Goods prices declined 0.7% M/M and are only 1.1% higher compared to the same month last year. Services inflation printed at 0.1% M/M and 1.7% Y/Y (unchanged). Recent inflation data came out below the SNB forecast from the September policy meeting, when it expected inflation to average 2% in Q4 2023 and to return slightly north of the 2% top of the tolerance band throughout 2024. The November data suggest a lower starting point for new projections to be published alongside the Dec 14 SNB decision. Even as SNB recently indicated that it remains prepared to raise the policy rate further if needed, the central bank next week can keep a wait-and see approach. The franc declined modestly to test EUR/CHF 0.95 after the CPI release.

At the other end of the inflation-spectrum Turkish prices continued to rise in November. Headline inflation printed at 3.28% M/M and 61.98% Y/Y (from 61.36%). Core inflation rose slightly to 69.9% Y/Y. Still, both measures were slightly softer than expected. In a monthly perspective, housing related costs added 11.17% with alcoholic beverages and tobacco prices 9.16% higher. The CBRT in its November inflation report upwardly revised its outlook for 2023 eoy inflation to 65%. It expects inflation to continue to rise in the first half of 2024. It might reach a peak near 75% Y/Y, before staging a steady decline to 36% at the end of next year. The CBRT raised its policy rate to 40% two weeks ago. The hike was bigger than expected, but the central bank indicated that the current level of tightness is significantly close to the required level. So, the pace of tightening will slow from here and the cycle is expected to be completed soon. The lira is holding near historic low levels against the dollar (USD/TRY 28.92) and the euro (EUR/TRY 31.48), but the pace of depreciation recently almost came to a halt.