Markets
Stock momentum faded, resulting into declines of more than 2% for the likes of the Nasdaq. European equities swapped gains for losses of around 1% across the continent. President Trump effectively ended the shutdown by signing the Congress-approved bill into law yesterday but markets clearly had been frontrunning the outcome. The number one question now is whether the upcoming official data either supports or opposes further Fed easing, in December in particular. Chair Powell was very clear at the October meeting that a third risk-management rate cut is not at all a given but markets up until this week remained pretty certain (+/- 70%). That changed yesterday with the odds dipping below 50% for the first time. Non-voting member Kashkari from the Minneapolis Fed said he’s undecided on December but he opposed the October cut, citing the underlying economic resilience and too-high inflation. Since then, available data suggested “more of the same”. Cleveland Fed Hammack repeated that she favours a pause next month with concerns about inflation outweighing those about the labour market. She said rates (3.75-4%) are “barely restrictive, if at all” and advocates keeping them steady around the current level. Musalem of the St Louis Fed argued again for moving cautiously with inflation running above the 2% target. The room to lower them is limited. US yields rose between 2.2 and 5 bps in a daily perspective. Long end underperformance followed a tailed $25bn 30-year auction. Demand metrics were slightly weaker but had to be compared with October’s record low primary dealer award. European rates rose in similar fashion. The 2-yr swap rate rallied to an 8-month high, surpassing the September high of 2.18%. The 10-yr tenor nears the upper bound of the current (since July) sideways trading range and 30-yr topped 3%, the first such close since 2023. EUR/USD’s rate-driven recovery was blocked around 1.1630 by US risk aversion. USD/JPY’s upside momentum hit resistance around 155, meaning DXY lacked the safety net it had on Tuesday. The trade-weighted index slipped towards the 99 handle. China’s yuan finished at the strongest level since October 2024, at 7.096. The below-consensus monthly update (including retail sales, IP, housing data and jobless rate) thwarts a further rise though. USD/CNY stabilizes around yesterday’s closing levels. For lack of an inspiring eco calendar – US retail sales and PPI are stilling missing while US government offices are working their way through the backlogs – we keep an eye at GBP today. EUR/GBP pushes through to the highest level since April 2023 around 0.885. Renewed sterling weakness creeped in after reports that UK Chancellor Reeves is reconsidering plans to raise income tax rates and other levies in the Nov 26 budget. Doing so would break with key election promises and has triggered internal revolt. GBP markets are left wondering what measures she’ll take to address the gaping deficit of almost 5% of GDP. Without higher taxes, growth-dampening austerity is the only viable option – assuming Starmer and Reeves don’t want to be the next Truss-Kwarteng.
News & Views
KPMG and REC’s monthly UK report on jobs showed temp billings increasing for the first time in 16 months in October. The downturn in permanent placements eased for the fourth straight month. Overall, employers remain hesitant to commit to new hires though amid a weaker economic climate and uncertainty over the upcoming government Budget. Vacancies continued to fall at a historically marked pace while both permanent and temporary staff availability rises at rates amongst the quickest since 2020. This supply/demand mismatch keeps pay pressures weak. The surveyors are hopeful that a Budget that build business confidence could be a catalyst for new hiring. They label today’s report as the best since the summer of 2024 but admit that this is just a more stable market.
The US administration released joint statements yesterday with four Latin-American countries (Ecuador, Argentina, El Salvador and Guatemala) saying that the US would reduce tariffs on a variety of goods not produced (sufficiently) domestically. Officials later confirmed that these goods would include products like bananas, coffee and beef. Certain textile and apparel products would also be under consideration. The press releases follow comments earlier this week by Treasury Secretary Bessent hinting in that direction in order to bring down domestic prices very quickly to temper the cost-of-living crisis. Tariff rates on non-exempted products will remain the same at 15% for Ecuador and 10% for the other three nations.
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