Markets
The November PMIs stood in the shadow of a much more important market driver today: risk sentiment. Stocks continued to slide with European equities catching up with the US yesterday where strong Nvidia results did little to address growing market concerns about elevated AI-valuations. The EuroStoxx50 at some point shed 1.4%, piercing through three key levels that created a strong support zone between the 5568.19 pre Liberation Day peak, the 5522.42 Dot Com high in 2000 and the 5516.5 23.6% retracement on the April-Nov rally. Enter Fed Williams. NY Fed boss said he still sees room for another rate cut “in the near term”. As a confidant to chair Powell and following a string of more hawkish signals from other policymakers (including today), Williams’ comments drew attention and lifted sentiment somewhat. The turnaround lacks conviction but for now it’s enough for the Stoxx50 cut losses to 0.8%. Wall Street opens with minor gains. Investors similarly kept puking out crypto before Williams lured dip buyers from the sidelines. BTC came to close to the 80k mark before recovering to 84k currently. Core bonds attract safe haven flows. US yields decline 1.7-3.1 bps, led by the front end – which is now pricing a 70% December Fed cut probability. German rates ease 2.2-3.1 bps across the curve. UK gilts actually outperform core peers with the long end of the curve erasing an earlier rise this week (-5.5 bps). This tentative calm risks being upended short-term by the upcoming Autumn Budget due November 26 though. The stakes are incredibly high for both gilts and the pound. The latter trades a tad stronger on the day around but above EUR/GBP 0.88, ignoring weak retail sales and a sub-par November PMI. The services sector (53.1) in the European edition kept powering economic activity, with a pullback in Germany counterbalanced by a French catch-up move and the rest of the EU. The manufacturing sector (49.7) remains mired around the 50 neutral level. Rising new orders in services offset a renewed fall in manufacturing. Employment stagnated. Input costs rose sharply and across sectors but didn’t feed through one on one in selling prices. Their rise slowed to the weakest in just over a year. Business confidence for the year ahead ticked higher and was above the running 2025 average. The PMIs mattered not for EUR/USD though, which instead had more attention for the risk off and a drop in Q3 negotiated wage growth to sub 2% for the first time since 2021Q1. The pair is struggling north of the 1.15 big figure.
News & Views
The Hungarian 10-y swap yield suddenly rose 6 bps (to 6.83%) and the forint weakened from the EUR/HUF 382.4 area to EUR/HUF 385.5. The Hungarian currency later recovered a bit to currently near EUR/HUF 384. The move might at least partially be due to an overall negative risk sentiment. However domestic headlines also might have been in play. Deputy governor Barnabas Virag, responsible for research, money circulation and central bank programs quit the monetary policy committee early. The MNB indicates that the Hungarian Parliament will hear Peter Banai as a nominee to take over the role of Virag. Virag in the future will still serve as an adviser to MNB governor Varga. The move as seen as driven by political considerations as it allows the current government to fill the function for the next six year mandate, ahead of parliamentary elections that are expected to rake place in April next year. Even as the move isn’t expected to change the MNB monetary policy stance anytime soon, markets apparently might feel discomfort with political uncertainty/unexpected decisions for current government in the run-up to the elections.
The UK PMI indicates a softer expansion of private business activity during November. The composite index decreased from 52.2 to 50.5. Services slowed from 52.3 to 50.5. Output in manufacturing equally eased from 51.6 to 50.6. New services orders declined for the first time since July amid heightened client caution ahead of the November Budget. Manufacturing registered a first increase in total new orders in over a year. Average output prices rose at their slowest rate in nearly five years but input price pressures accelerated, putting margins under pressure. In a context of tight margins and heightened policy uncertainty, firms reduced their headcounts more aggressively than in October. Business activity expectations also moderated from October’s 12-month peak. The PMI suggests no growth this month and corresponds with a meagre 0.1% Q4 quarterly pace. S&P assesses that “The PMI data therefore suggest the policy debate will shift further away from inflation worries toward the need to support the struggling economy, hence adding to the chances of interest rates being cut in December”, a view we endorse.
