Markets
Energy prices continue to falter today. Brent is testing the recent lows around $94 per barrel, which coincides with the 100 & 200 daily moving average. A break lower paves the way from a technical point of view towards the $80-$90 region with $70 acting as the post-war low. Natural gas (Dutch TTF) is about to lose the 50dMA near €82/MWh. The broader correction lower started in November and gained momentum after Democrats swept over Congress in the midterms, fueling speculation for a quicker and diplomatic resolve to the conflict. Hopes grew further after President Trump over the weekend said renewed strikes on Iran were highly unlikely. Unconfirmed reports of Iran dropping a demand to collect transit fees in the Hormuz strait and the US president allegedly having agreed to an Iraqi proposal to end the war finish it off today. The Qatari PM later denied the headline though. The price drop killed off a shy attempt by European rates to rise intraday. The swap curve bull flattens with changes varying between flat (2-yr) to -2 bps (10-yr). US Treasuries still add 1-2 at the front end of the curve in the wake of a blow-out October payrolls report. Longer tenors are down 1-2.5 bps in technically insignificant trading. The focus for rates traders this week will be tomorrow’s clipped October CPI. Stock markets kick off the new week on solid footing. The EuroStoxx50 climbs 1.5%. Wall Street opens between 1.4% (Dow Jones) and 1.9% (Nasdaq) in gains that are more broad-based than Friday and biased by heavyweight Nvidia’s (-5 to -6%) CEO suddenly playing main character in a potential spy scandal.
The US dollar trades in the defensive with especially energy prices hurting the greenback’s appeal. EUR/USD gradually appreciated from as low as 1.114 back to the 1.12 big figure currently. DXY erases much of Friday’s gains to fill offers around 101.8. Both EUR/USD and DXY hold tight within a narrow sideways trading range. The same goes for EUR/GBP, which has been going nowhere around 0.833 in November so far. The kiwi dollar outperforms on the global scoreboard, pulling NZD/USD back north of 0.56. New Zealand elections over the weekend will probably result in the center-right coalition remaining in power, even as the leading National Party’s position was severely weakened (see below). Some pointed out that (the risk of) a Labour-led government in power would lead to reinstating maximum employment into monetary policy, alongside a capital gains tax and possibly more expansive fiscal policy.
News & Views
The New Zealand dollar rallied today following this weekend’s general election. NZD/USD moved away from YtD lows below NZD/USD 0.5550 at the end of last week to currently change hands above 0.56. In a very close contest, PM Luxon National Party’s right-wing bloc is expected to win 67 seats in 135-seat parliament. The left-wing opposition bloc centered around Labour is projected at 56 seats with the centrist Opportunity party on seven. Final results will be confirmed by the end of the month. Within the ruling right-wing bloc, Luxon’s National Party lost 6 seats (42 from 48) while ACT (13 from 11) and NZ First (12 from 8) both gained relative strength. This implies a shift in power within the government as well with these coalition partners seen pushing more aggressively for spending cuts, thereby tightening fiscal policy. Labour came in overall second with 36 seats (up from 34).
German Chancellor Merz warned to block the EU’s next 7-yr budget without financial support for Ukraine in 2027 and beyond. The FT refers to a letter seen addressed to EC president Costa: “A collective commitment that all of us, without exception, will contribute fairly to closing [Ukraine’s financing] gap is an essential prerequisite for resolving this issue and for discussing any further matters, particularly those with financial implications.” Ukraine faces an estimated €70bn financing gap next year. EU leaders meet in Dublin on Thursday and on Friday.
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