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In focus today

Several key data prints are due for release, led by the US October JOLTs labour turnover, an important measure of labour demand watched closely by the Fed.

In the euro area, focus turns to the release of the final manufacturing PMIs for November. The prior flash release caused a large market reaction, so it is important to follow the final release.

In Switzerland we get inflation data for November. Developments in the underlying price pressure will be key ahead of the upcoming SNB meeting on 12 December, when a step-up in easing pace is on the table.

Following the French political events of yesterday - read more below, French lawmakers now have until Wednesday to bring forward a motion of no confidence. Once the motion is brought forward, it must be voted in within three days. Investors await the outcome of the uncertain situation, EUR/USD is down, and French government bond yields are up since yesterday.

Economic and market news

What happened overnight

In China, the Yuan declined to its lowest level against the dollar in a year with USD/CNY climbing to 7.29 a 68bp change this month. The shift comes amid Trump tariff threats and monetary easing expectations. Similar movements were seen in equities, with China's CSI 300 index down by 0.4%.

What happened yesterday

In France, Prime Minister Michel Barnier activated article 49.3 of the French constitution, allowing him to force through a social security bill, provided the government can survive an imminent no-confidence vote. Both the far-right Rassemblement National party led by Marine Le Pen and the far-left France Unbowed part have moved to set the no-confidence vote into motion. Following the unwinding political turmoil, 10-year French government bonds faced yields rising to 2.911%, widening the spread to 10-year German government bonds at 2.035% by 86bp.

In the US, the ISM Manufacturing PMI for November came in slightly above expectations at 48.4 (cons: 47.5, prior: 46.5). Notably, new orders rebounded to 50.4 from 47.1 in October and the uptick confirmed the positive signals seen in earlier PMIs, as employment improved, and price pressures appear to be cooling. On a more cautious note, order-inventory balances appear to be trending lower, indicating limited need for firms to ramp up production over the coming months.

Federal Reserve Governor Christopher Waller stated that he is currently inclined to support another interest rate cut later this month, given that inflation is still projected to decrease to 2%. The statement led investors to increase their expectations for a rate cut at the Fed's December meeting, currently pricing just below 20bp for the meeting. We expect a 25bp cut in December.

In the euro area, unemployment rate remained unchanged as expected at 6.3%. Providing an unchanged view of the labour market, usually key to the economic and monetary policy outlook. So far, the labour market remains strong driven especially by Spain while the German labour market is clearly deteriorating.

In Sweden, the manufacturing PMI index for November climbed to 53.8 from 53.1 in October. Swedish manufacturing is going strong, especially when compared to the major euro economies where PMIs are well below 50. Last week, NIER's manufacturing index bounced higher, though it remains in contraction territory. The weak krona and a solid US market are tailwinds, while the bleak outlook for Europe is a headwind.

In Norway, the manufacturing PMI dropped to 50.7 from 52.4 in November, and details even weaker with new orders at 47.0 and production at 46.4. Employment dropped marginally to 52.5 from 53.7, still providing solid labour market signals. The PMI has been extremely volatile since the spring, and we pay more attention to other leading indicators. That said, the more broad-based confidence indicator (quarterly) from Statistics Norway paints the same picture: there seems to be some weakening in the manufacturing sector as the strongest headwinds from oil investments are fading.

Equities: Global equities experienced an uplift yesterday, following a significant turnaround in Europe and solid performance in emerging markets. In the US, the majority of markets also trended upwards, albeit with narrow leadership primarily from mega-cap stocks, technology, communication services, and consumer discretionary sectors. To illustrate, only 3 out of 10 sectors in the S&P 500 registered gains, while 7 declined. Regarding yesterday's performance in the US: Dow -0.3%, S&P 500 +0.2%, Nasdaq +1.0%, Russell 2000 -0.02%. This morning, Asian markets are showing gains, led by Japanese main indices, which are higher by more than 2% despite the currency remaining relatively stable. Futures in the US and Europe are also indicating a positive opening this morning, with Europe taking the lead.

FI: The chaos in French politics continued yesterday as far-right leader Le Pen filled motions to hold a no-confidence votes against PM Barnier and his government. The votes could take place already this week. The 10Y OAT-Bund spread continued widening, closing at a 12-year peak of 88bp, despite some initial tightening. The EUR swap curve (vs. 6M) moved some 5-6bp lower with the 10Y tenor reaching a 2-year low of 2.10%. ECB's Kazaks added to the downward pressure on EUR rates by flagging that a 50bp cut at next week's meeting will 'definitely' be discussed. The Bund ASW-spread held steady at 9-10bp. US swap rates closed slightly higher for the 2Y+ tenors following stronger-than-expected final PMI and ISM data for the manufacturing sector in November. Fed's Waller's comments on him 'leaning towards a December cut' moved the market pricing of rate cuts from 16bp to 19bp. We expect a 25bp cut.

FX: The USD began the week on a strong note, with EUR/USD dropping to around 1.05 with political uncertainty in France and Trump's threat of a "100% tariff on BRICS nations" supported the broad USD. EUR/CHF edged lower during yesterday's session trading around the 0.93 mark ahead of an eventful day for Swiss markets with the release of November inflation. While the USD crosses gyrated last week with USD/SEK spanning more than 20 figures, EUR/SEK remained in a tight range just above 11.50.

Daily Pivots: (S1) 0.6441; (P) 0.6478; (R1) 0.6514; More...

AUD/USD is staying in range above 0.6433 despite this week's dip. Intraday bias remains neutral first, and further decline is expected with 0.6549 resistance intact. On the downside, break of 0.6433 will resume whole decline from 0.6941, and target 0.6348 support next. However, firm break of 0.6549 will indicate short term bottoming, and bring stronger rebound to 55 D EMA (now at 0.6596).

In the bigger picture, rise from 0.6269 (2023 low) should have completed with three waves up to 0.6941. Corrective pattern from 0.6169 (2022 low) is now extending with another falling leg. Deeper decline would be seen back to 0.6269 as sideway trading extends.

Trading in the forex markets were subdued in the Asian session. Low activity is expected to persist for the rest of the day due to a light economic calendar. Dollar remains resilient, supported by expectations that the incoming US administration will favor a strong currency. While the sharp drop in US Treasury yields has put some pressure on USD/JPY, the greenback has held its ground against Euro and other currencies.

FOMC rate cut speculation has gained momentum following comments from Fed Governor Christopher Waller, who signaled preference to a December easing. Fed funds futures now indicate a 75% probability of a 25bps rate cut at the meeting, up from 66% yesterday and 59% a week ago. However, traders remain cautious as this week’s critical data, especially Friday’s non-farm payroll report, could shift market expectations dramatically.

Overall for the week so far, Euro continues to face headwinds, ranking as the weakest major as weighed down by political instability in France. Swiss Franc and British Pound are the next weakest performers, highlighting overall softness among European currencies. Conversely, Dollar leads the pack, edging out Yen for the top spot, with the Canadian Dollar rounding out the top three. Australian and New Zealand Dollars are trading in middle positions.

Technically, US 10-year yield is now sitting in an important near term support zone between 55 D EMA (now at 4.196) and 38.2% retracement of 3.603 to 4.505 at 4.160. Strong rebound from current level will keep price actions from 4.505 corrective, and keep the rise from 3.603 alive. However, firm break there will confirm near term reversal and bring deeper fall to 61.8% retracement at 3.947.

Should this scenario unfold, it could exert additional downward pressure on USD/JPY. Nevertheless, given Dollar's relative resilience against other currencies, a more compelling short opportunity might emerge in EUR/JPY. The cross could be poised for further declines, possibly retesting the recent low at 154.40, especially if European currencies continue to weaken amid ongoing political uncertainties.

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In Asia, at the time of writing, Nikkei is up 1.90%. Hong Kong HSI is up 0.66%. China Shanghai SSE is up 0.40%. Singapore Strait Times is up 1.17%. Japan 10-year JGB yield is up 0.0057 at 1.083. Overnight, DOW fell -0.29%. S&P 500 rose 0.24%. NASDAQ rose 0.97%. 10-year yield rose 0.018 to 4.196.

Fed’s Waller favors Dec rate cut, confident inflation in choke hole will tap out

Fed Governor Christopher Waller expressed tentative support for a rate cut at the December FOMC meeting, contingent on upcoming data aligning with expectations for inflation to decline toward the 2% target over the medium term.

While stating that he currently "leans toward supporting a cut," Waller emphasized that any unexpected data could alter his forecast and influence his decision.

Waller used a vivid analogy, comparing his efforts to combat inflation to an "MMA fighter" with inflation in a "choke hold". While it keeps "slipping away" at the last minute, he assured that "submission is inevitable" and that inflation isn't escaping the "octagon."

Despite slower progress on taming inflation, he highlighted broader economic stability as a factor supporting further monetary easing. Waller argued that, even after a cumulative 75 basis points in cuts, policy would remain restrictive, with additional easing simply reducing the intensity of Fed’s brake on economic activity.

Fed’s Bostic: Labor market cooling in an orderly fashion as inflation progress on track

In an essay, Atlanta Fed President Raphael Bostic expressed cautious optimism about the US economy, highlighting that the labor market is cooling in a "largely orderly fashion" despite higher interest rates. "This is welcome news," Bostic noted, echoing perspectives from business contacts.

Besides, he noted that while there are still upside risks to price stability, the "totality of the data" suggests that progress toward 2% inflation target remains "on track".

Bostic assessed the broader economy as being "on solid footing," with the labor market stable near maximum employment and price stability within reach. However, he warned against complacency, noting that the monetary policy outlook is not predetermined.

"In making judgments about what this path should look like, my strategy will be to look to the incoming data," he said, emphasizing a need for vigilance as policymakers address remaining challenges.

Fed’s Williams: Moving toward neutral policy, timing hinges on data

New York Fed President John Williams said in a speech yesterday that monetary policy will need to "move to a more neutral policy setting over time."

However, he refrained from offering firm guidance on the timing of rate cuts, including whether a December adjustment might be appropriate.

Williams highlighted the uncertainty inherent in economic forecasting, noting that "the path for policy will depend on the data."

Despite the ambiguity, Williams painted a relatively optimistic picture of the US economy, describing it as in a "good place" with a "strong" labor market.

He projected economic growth of 2.5% or more for the year, with unemployment expected to stabilize between 4% and 4.25% in the coming months. Inflation is anticipated to end the year at 2.25%, with no significant upward pressure from the labor market.

Looking ahead

The economic calendar is light today with Swiss CPI and US JOLTS job openings the only features. Nevertheless, some Fed officials are scheduled to speak, which could drop some hints on their preferences at the upcoming FOMC meeting.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6441; (P) 0.6478; (R1) 0.6514; More...

AUD/USD is staying in range above 0.6433 despite this week's dip. Intraday bias remains neutral first, and further decline is expected with 0.6549 resistance intact. On the downside, break of 0.6433 will resume whole decline from 0.6941, and target 0.6348 support next. However, firm break of 0.6549 will indicate short term bottoming, and bring stronger rebound to 55 D EMA (now at 0.6596).

In the bigger picture, rise from 0.6269 (2023 low) should have completed with three waves up to 0.6941. Corrective pattern from 0.6169 (2022 low) is now extending with another falling leg. Deeper decline would be seen back to 0.6269 as sideway trading extends.

New York Fed President John Williams said in a speech yesterday that monetary policy will need to "move to a more neutral policy setting over time."

However, he refrained from offering firm guidance on the timing of rate cuts, including whether a December adjustment might be appropriate.

Williams highlighted the uncertainty inherent in economic forecasting, noting that "the path for policy will depend on the data."

Despite the ambiguity, Williams painted a relatively optimistic picture of the US economy, describing it as in a "good place" with a "strong" labor market.

He projected economic growth of 2.5% or more for the year, with unemployment expected to stabilize between 4% and 4.25% in the coming months. Inflation is anticipated to end the year at 2.25%, with no significant upward pressure from the labor market.

Fed Governor Christopher Waller expressed tentative support for a rate cut at the December FOMC meeting, contingent on upcoming data aligning with expectations for inflation to decline toward the 2% target over the medium term.

While stating that he currently "leans toward supporting a cut," Waller emphasized that any unexpected data could alter his forecast and influence his decision.

Waller used a vivid analogy, comparing his efforts to combat inflation to an "MMA fighter" with inflation in a "choke hold". While it keeps "slipping away" at the last minute, he assured that "submission is inevitable" and that inflation isn't escaping the "octagon."

Despite slower progress on taming inflation, he highlighted broader economic stability as a factor supporting further monetary easing. Waller argued that, even after a cumulative 75 basis points in cuts, policy would remain restrictive, with additional easing simply reducing the intensity of Fed’s brake on economic activity.

Short Term Elliott Wave view on SP500 (SPX) suggests rally from 8.5.2024 low is in progress as a 5 waves impulse. Up from 8.5.2024 low, wave 1 ended at 5627.56 high and pullback in wave 2 ended at 5402.62 low. The Index then extends higher in wave 3 ending at 5878.46 high. The next pullback built a zigzag Elliott Wave structure to finish wave 4 at 5696.51 low like the 1 hour chart below shows. Actually, the SPX is trading higher in wave 5 developing an impulse or ending diagonal structure.

Wave 5 rally is in progress with internal subdivision as another impulse. Up from wave 4, wave ((i)) ended at 6017.31 high and wave ((ii)) retracement ended at 5853.01 low. Wave ((iii)) has started and it is trading in wave v of (iii) of ((iii)). Up from wave ((ii)), wave (i) ended at 5908.12 and wave (ii) correction ended at 5855.29. Then the SPX built a nest ending wave i at 5923.51 and wave ii at 5860.56. Wave iii of (iii) finished at 6025.42 and wave iv pullback at 5984.87 low. From here, we are expecting that wave v of (iii) completes soon and the index should see a pullback in 3 swings as wave (iv) before resuming higher in wave (v) of ((iii)). Near term, as far as pivot at 5850.8 low stays intact, expect pullback to find support in 3, 7, or 11 swing for more upside

SP500 (SPX) 60 Minutes Elliott Wave Chart

SPX Elliott Wave Video

https://www.youtube.com/watch?v=cftR2W1H_UM

In an essay, Atlanta Fed President Raphael Bostic expressed cautious optimism about the US economy, highlighting that the labor market is cooling in a "largely orderly fashion" despite higher interest rates. "This is welcome news," Bostic noted, echoing perspectives from business contacts.

Besides, he noted that while there are still upside risks to price stability, the "totality of the data" suggests that progress toward 2% inflation target remains "on track".

Bostic assessed the broader economy as being "on solid footing," with the labor market stable near maximum employment and price stability within reach. However, he warned against complacency, noting that the monetary policy outlook is not predetermined.

"In making judgments about what this path should look like, my strategy will be to look to the incoming data," he said, emphasizing a need for vigilance as policymakers address remaining challenges.

Full essay of Fed's Bostic here.

Fundamental Analysis

WTI crude oil prices have started to recover, trading at $68.90 amidst rising tensions ahead of the key OPEC+ meeting on Thursday. A critical article by a senior Iranian official has highlighted that the group’s production cut policies have kept prices elevated for too long, incentivizing cheaper oil production outside the cartel, particularly in the U.S. This debate could stir internal frictions within OPEC+ and increase uncertainty regarding policy decisions for 2025.

Additionally, the strengthening U.S. Dollar Index (DXY), driven by Trump’s threats against BRICS and the political turmoil in France, adds bearish pressure on crude, as a stronger dollar typically makes commodities more expensive. While the partial shutdown of the Druzhba pipeline in Poland could temporarily support prices, the short-term outlook will depend on whether OPEC+ manages to send clear signals about supply adjustments to stabilize prices in an increasingly competitive global market.

Technical Analysis

XTIUSD, H2

Supply Zones (Sell Levels): 69.00 and 69.40
Demand Zones (Buy Levels): 68.50, 67.30

Crude oil remains under bearish pressure, hitting the sell targets outlined in the previous analysis here.

The current support sits at 67.74, confirming 69.51 as the most recent validated resistance. This implies that the bearish trend will persist as long as the price remains below this level.

At the time of this analysis, the day's bullish opening drove the price toward Friday’s POC at 69.00, identified as the latest supply zone. New short positions are expected below this zone, targeting Friday's support at 67.74 and the next demand zone around 67.30 intraday.

If a bounce occurs, followed by a break of the indicated demand zone, the price will aim for October's support at 66.17 and the psychological level of 66.00. This scenario will hold unless news emerges concerning risks to crude transportation.

Technical Summary

Bearish Scenario:

• Sell Below 69.00
• • Take Profits (TP): 68.50, 68.00, 67.74, 67.30 (intraday), and 67.00, 66.52, 66.17, 66.00 (throughout the week).
  • As long as the price does not break above the latest validated resistance, currently at 69.51, which will shift lower as the price declines.

Bullish Scenario:

• Buy Above 69.51
  • Take Profits (TP): 70.00 and 70.50 (extension).
  • Use a stop-loss (SL) of 1% of your capital with a small lot size to allow for market fluctuations.

• NZDJPY broke support zone
• Likely to fall to support level 86.75

NZDJPY currency pair recently broke the support zone located between the support level 89.00 and the 38.2% Fibonacci correction of the upward price move from the start of August.

The breakout of this support zone accelerated the active c-wave of the ABC correction 2 from the start of November.

Given the strongly bullish yen sentiment seen today, NZDJPY currency pair can be expected to fall to the next support level 86.75 (former support from September and the target price for the completion of the active ABC correction 2).