Dollar’s Attempt to Take Out First Resistance Failed

Markets

Dip buyers emerged on stock markets as key indices tested crucial support levels (combination of October lows & 100d moving average; both for the likes of EuroStoxx50 and S&P 500/Nasdaq). We must add that breathing space above those crucial levels remains extremely thin for the moment. One spark could suffice in flipping the balance again. Apart from technical consideration, Ukrainian peace talks (probably unacceptable at current terms, but starting point for negotiations), November US PMI’s (composite 55 from 54.8 vs 54.6 expected) and NY Fed Williams comments offered some comfort. Flash PMI’s signaled faster economic growth, but price pressures also intensified. Input costs rose at one of the fastest rates seen over the past three years, driving a re-acceleration of selling price inflation. Higher costs and prices were again commonly attributed to tariffs. The pace of job creation meanwhile remained only modest, principally due to cost concerns. The upturn was driven by the largest increase in new orders received by businesses since last December (and the second greatest gain since April 2022), indicating a second successive monthly improvement in demand growth. October and November survey data are consistent with the economy expanding at a 2.5% annualized rate in Q4, pointing to robust and resilient economic growth as we head into the year end. NY Fed Williams sees room for a rate cut in the near term, boosting December rate cut bets (our preferred scenario) again to 65%. The US yield curve showed a modest bull steepening with yields 2.5 bps to 1 bp lower on the day. The (trade-weighted) dollar’s attempt to take out first resistance failed, but the greenback keeps pushing against the 100.25-area this morning. EUR/USD currently changes hands at 1.1520 but is at risk of reverting back to the 1.1392 August bottom.

Risk sentiment on Asian stock markets is generally constructive this morning with Japanese markets closed for Labor Thanksgiving Day. Today’s eco calendar is thin with only German Ifo Business sentiment. Key themes in this holiday-shortened US week (Thanksgiving on Thursday) are the US-brokered peace talks in Ukraine (Thursday as a first deadline; gas prices drop to lowest level since May 2024 this morning), general risk sentiment, tomorrow’s eco data (retail sales & consumer confidence) and UK Chancellor Reeves’ budget on Wednesday. We also eye the faith of Belgian OLO’s vs French OAT’s this morning. Belgian PM De Wever announced a multi-year federal budget this morning, details of which are still unravelling. French lawmakers on the other hand have rejected a first draft of the 2026 budget.

News & Views

Rating Agency Moody’s on Friday upgraded Italy’s credit rating from Baa3 to Baa2 (stable outlook). The upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience plan. The rating upgrade also points to the prospect of further policy actions supporting growth and fiscal consolidation beyond the plan’s deadline in August next year. With respect to the fiscal outlook, Moody’s indicates that tax collation has been improving, as tax revenue outpaced nominal GDP growth since 2021. In an environment of political and policy stability, the rating agency expect the government to be able to continue fiscal consolidation through revenue and expenditure measures. Rising primary surpluses are expected to support a gradual decline in the government debt ratio from 2027. Debt is expected to decline to just above 130% of GDP by 2034 from an estimated 136.5% for 2025. Even so, the agency still sees debt to remain high and debt affordability will gradually weaken as higher interest rates translate in higher refinancing costs.

According to the people familiar with the matter, the Reserve Bank of India (RBI) this morning intervened in the currency market. The action of the RBI came after a sharp decline of the Indian currency on Friday, pushing it to a new record low against the dollar near USD/INR 89.5. According to sources, the RBI sold dollars overseas and on the local market. The country’s trade deficit recently rose as exports to the US dropped sharply after the US imposed tariffs of 50% on the countries imports to the US. A further weakening of the rupee contains the risk of further capital outflows and over time raises inflationary risks via higher import prices.