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In focus today

Today, in euro area we receive ECB's indicator of negotiated wage growth in the third quarter. The indicator declined significantly in Q2 to 3.5% y/y from 4.8% y/y, and we expect a rebound in Q3 as the decline in the second quarter was due seasonality of the payments especially in Germany. Hence, we do not put too much weight on the expected increase as most recent wage negotiations for the next year point to significantly lower wage growth going forward, which is the most important for the ECB.

We have several central bank speeches from both ECB and Federal Reserve during the day, where the market will look for clues on monetary policy.

There is significant focus on Nvidia as they are publishing earnings announcement today. A strong result is expected to support the equity markets.

Economic and market news

What happened over night

In China, Loan Prime Rates were as expected kept unchanged with 1Y 3.1% and 5Y at 3.6%. Part of the reason is the recent sharp depreciation pressure on the CNY which will likely keep PBOC sidelined for now on rates to not add to the downward pressure on the currency. Last week they again set the daily USD/CNY fixing stronger than the spot rate, indicating efforts to slow the depreciation.

What happened yesterday

In the euro area, October inflation was reported at 2.0% y/y (0.3% m/m). Core inflation was confirmed at 2.7% y/y despise service inflation being revised slightly up to 4.0% from 3.9%. The domestic inflation measure (LIMI) held steady at 4.2%, indicating persistent price pressure. However, the momentum declined again signalling a continued downward trend, which we expect will continue as wage growth declines. Overall, the downward trend in underlying inflationary pressures remains on track, which allows the ECB to continue lowering rates.

In Germany, negotiated wages surged significantly to 8.8% y/y in Q3 from 3.1% y/y in Q2. Even excluding special payments, wages rose 5.6%, indicating substantial increases. For the ECB, the most important is the wage growth outlook and as such the previous developments. The German Bundesbank anticipates future wage negotiations to moderate due to economic weakness and lower inflation. However, current high wage growth suggests that services inflation might remain sticky in the short term, influencing ECB's policy decisions amid uncertainties about the pace of wage growth slowdown.

In Russia-Ukraine, Ukraine hit a military target inside Russia using long-range US-made missiles, marking the first use since restrictions were lifted. As a response, Russia lowered threshold for a nuclear strike. The market reacted to the resurgence of geopolitical tensions, by a decline in European stocks and the euro as investors rushed to safe-haven assets such as government bonds and gold.

Equities: Global equities were higher yesterday, although this was not a day of uniform global performance. Europe, and particularly Eastern Europe, underperformed due to escalating geopolitical tensions and the Ukraine-Russia war. Examining the sector rotation reveals significant differences across the Atlantic; cyclicals underperformed in Europe while outperforming in the US. It is important to note that we did not receive any significant macroeconomic data yesterday. Thus, the explanation for market movements appears to lie in the weaponised escalation. In the US yesterday, the Dow closed down 0.3%, the S&P 500 was up 0.4%, the Nasdaq rose by 1.0%, and the Russell 2000 increased by 0.8%. Most markets in Asia are in the red this morning, while both European and US futures are trending higher.

FI: The rising tensions between Russia, Ukraine and NATO provided some tailwinds to the EGB market yesterday with the 10Y Bund yield declining almost 11p before noon. However, most of the move faded through the second half of the session as Russian foreign minister Lavrov tried to dampen fears of a nuclear escalation. The Bund ASW-spread rose by 4bp throughout the day - the largest 1D move since June - with the level now back in positive territory (1.7bp).

FX: It was a steady day for the global FX market yesterday with little big news to drive the market and mixed risk sentiment. G10 currencies posted small gains versus the USD with commodity currencies, NZD, AUD, CAD and NOK once again leading the way. EUR/USD traded in a tight range below 1.06, EUR/SEK around 11.60 and EUR/NOK dropped towards 11.60.

Geopolitical tensions were on the headlines yesterday after Ukraine fired its first US missile to Russia after having received the green light from the White House following a two-year wait to do so. And Kremlin relaxed rules that would allow them to use nuclear weapons in case of an attack on its soil. Consequently, the session was marked by a swift flight to safety. Gold and treasuries gained, the Swiss franc tipped a toe below the 200-DMA, and crude oil was better bid. The barrel of US crude remained short of testing the $70pb offers however, as the geopolitical-led rally brought the top sellers back to the market. The fact that most Western economies have cut their exposure to Russian oil, and the weak demand outlook from China – which buys around half of the Russia oil today - keeps the bears in a dominant position below the $70pb level.

European indices fell and major US indices kicked off yesterday on a bad mood, but the geopolitical worries gradually left their place to optimism in the US after Walmart rallied to a fresh record on higher-than-expected sales and strong outlook for the holiday season, and on hope that Nvidia would do the same today, after bell.

Risk sentiment is improved today. US and European futures hint at a positive start and demand for safe haven assets has slowed.

Nvidia

One of the most highly anticipated days of the earnings season, if not the most, the Nvidia earnings day, is finally here. Nvidia is expected to have sold for $33bn of chips last quarter: it is 10% higher than the revenue the company announced last quarter, it is more than 80% of the amount they made during the same time last year and more than five times the amount they used to make before the AI craze began at the beginning of last year. The strong AI demand, particularly the insane demand for Nvidia’s next generation Blackwell chips - as says CEO Jensen Huang, and the robust results from TSM – that builds Nvidia’s chips – hint that the results will probably meet and hopefully beat these expectations. Nvidia closed yesterday’s trading session at $147 per share – a touch below its ATH level, and will either extend its rally to a fresh ATH, or decline on some profit taking. The implied volatility for Nvidia shares, based on at-the-money options pricing, stood at approximately 58% for a 30-day period as of November 18 hinting at a potential move of approximately 8-10% in the share price immediately after earnings. That implies a potential move around 1-2% in S&P500, to the upside or to the downside.

But it’s hard to say that good results will lead to a good market reaction. Last quarter, the blowout results and solid outlook weren’t necessarily enough to boost the share price after the earnings announcement. Over time, and at the current valuations, investors have become harder to satisfy and increasingly worried about what could go wrong.

Blackwell delays are the most obvious thing that could go wrong. But the company had successfully tamed worries regarding the Blackwell chips at last quarter’s results. And I believe, they will do the same this time around; they will probably play down the delays that could happen for this type of technology releases and focus on the insanity of the demand. If the company could convince investors that they are making progress to meet this insane demand, the reaction will likely be positive.

Other risks involve the rising competition and a slower future demand for AI from the Big Tech. The AI demand will not die out, even if it slows. Capital continues to flow into AI startups, especially in the US, many sectors, public or private, consider AI projects to improve their productivity levels. But demand outside the Big Tech will be more granular, and the new AI customers will certainly be looking for more affordable chips than Nvidia’s expensive, premium ones. That said, Nvidia has an important card to play now, and it’s called Balckwell. Some expect the company to ship up to 100’000 of these chips in the current quarter: that would be a $7mio addition to sales revenue...

Looking at political risks, the expectation that the new Trump administration could further revive the chip war with China is not a major worry anymore, because Nvidia has a significantly smaller exposure to China today than it did before. In 2021, the company made 25% of its revenue from China. Last quarter, the revenue from China was no more than 12%. But if tariffs go beyond China, it could be an issue for Nvidia that made almost two thirds of its revenue from abroad last quarter.

Daily Pivots: (S1) 194.35; (P) 195.37; (R1) 197.16; More...

GBP/JPY's strong rebound an break of 196.13 minor resistance suggests that pull back from 199.79 has already completed. The development also revive near term bullishness. Intraday bias is back on the upside for retesting 199.79 resistance first. Firm break there will rebound whole rebound from 180.00.

In the bigger picture, price actions from 208.09 are seen as a correction to whole rally from 123.94 (2020 low). The range of consolidation should be set between 38.2% retracement of 123.94 to 208.09 at 175.94 and 208.09. However, decisive break of 175.94 will argue that deeper correction is underway.

Yen fell broadly during Asian session today, reversing all of this week's earlier gains. Market sentiment has calmed somewhat despite the escalation in Russia's war in Ukraine, as there is no clear intensification toward a nuclear conflict. US Treasury yields have stabilized after yesterday's decline, and Gold's rebound has also stalled. Attention now turns to the upcoming UK CPI data.

UK inflation is expected to rebound from 1.7% to 2.2% in October, while core CPI is projected to slow slightly but remain elevated at 3.1%. The British Retail Consortium, along with over 80 retail companies, has requested a meeting with Finance Minister Rachel Reeves, warning that last month's budget would result in higher prices, job losses, and reduced investment.

BoE Governor Andrew Bailey has indicated that, given the uncertainty surrounding the impact of the Autumn budget, a gradual approach to monetary easing is needed. Persistent inflation is likely to keep BoE cautious about an inflation resurgence, leaning toward another pause at the December meeting.

Overall in the currency markets for the week so far, Aussie is the strongest one followed by Loonie and then Kiwi. Yen is the worst now, followed by Dollar and then Euro. Sterling and Swiss Franc are positioning in the middle. But almost all major pairs and crosses are still stuck inside last week's range, indicating that consolidations remain in progress.

Technically, while Gold rebounded strongly this week, it's still struggling to break through 55 D EMA (now at 2627.547). Price actions from 2789.92 are seen as a correction to whole five-wave rally from 18102.6. Rejection by the 55 D EMA will extend the decline to 38.2% retracement of 1810.26 to 2789.92 at 2415.68. Nevertheless, sustained trading above 55 D EMA will bring retest of 2789.92 high first, before starting the third leg to finish the corrective pattern.

In Asia, at the time of writing, Nikkei is down -0.36%. Hong Kong HSI is down -0.17%. China Shanghai SSE is up 0.20%. Singapore Strait Times is down -0.14%. Japan 10-year JGB yield is up 0.0073 at 1.072. Overnight, DOW fell -0.28%. S&P 500 rose 0.40%. NASDAQ rose 1.04%. 10-year yield fell -0.035 to 4.379.

Fed’s Schmid: Path and destination of rate cut yet to be determined

Kansas City Fed President Jeffrey Schmid highlighted in a speech overnight the decision to lower rates this year as a reflection of the "growing confidence" in inflation’s moderation.

This optimism, he explained, stems from signs that "both labor and product markets have come into better balance in recent months."

While acknowledging this progress, Schmid cautioned, “It still remains to be seen how much further interest rates will decline or where they might eventually settle.”

Schmid also addressed concerns about the implications of large fiscal deficits on monetary policy. He emphasized that such deficits are not inherently inflationary, as long as Fed maintains its commitment to the 2% inflation target.

However, he warned that this approach could necessitate "persistently higher interest rates," creating tensions with political authorities. He noted, “History has shown that efforts to avoid higher interest rates by accommodating deficits often result in higher inflation.”

Japan's exports rebound by 3.1% yoy in Oct, but trade deficit persists

Japan's exports rose 3.1% yoy in October, reaching JPY 9,427B, a strong recovery from the -1.7% yoy decline in September, which marked a 43-month low.

This rebound was primarily driven by a 1.5% yoy increase in shipments to China, buoyed by strong demand for chipmaking equipment. However, exports to the US, Japan's largest trading partner, fell -6.2% yoy, reflecting weakness in auto shipments.

On the import side, growth remained modest at 0.4% yoy, totaling JPY 9,888B. This resulted in a trade deficit of JPY -461B for the month, the fourth straight month of shortfall.

Seasonally adjusted data showed exports declining -0.7% mom to JPY 8,882B, while imports ticked up 0.2% mom to JPY 9,239B, leading to a seasonally adjusted trade deficit of JPY -358B.

Australia Westpac leading index hits 0.26%, decisive breakaway from year-long sluggishness

Australia's Westpac Leading Index moved decisively into positive territory in October, rising from -0.20% in September to +0.26%.

This marks a significant shift, as the index had been hovering in slight negative territory, between -0.3% and flat, for most of the past year. The October reading is not only the first clear above-trend result since November 2023 (+0.16%) but also the strongest since July 2022 (+0.63%).

The improvement in the index provides a "constructive signal" for the economy’s future momentum. Westpac’s outlook aligns with this shift, forecasting an acceleration in economic growth from a nadir of 1.0% in mid-2024 to 1.5% by year-end and 2.4% by the end of 2025.

Looking ahead

UK CPI is the main focus in European session while PPI will also be featured. Germany will release PPI.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 194.35; (P) 195.37; (R1) 197.16; More...

GBP/JPY's strong rebound an break of 196.13 minor resistance suggests that pull back from 199.79 has already completed. The development also revive near term bullishness. Intraday bias is back on the upside for retesting 199.79 resistance first. Firm break there will rebound whole rebound from 180.00.

In the bigger picture, price actions from 208.09 are seen as a correction to whole rally from 123.94 (2020 low). The range of consolidation should be set between 38.2% retracement of 123.94 to 208.09 at 175.94 and 208.09. However, decisive break of 175.94 will argue that deeper correction is underway.

Key Highlights

• Bitcoin price started a consolidation phase near the $90,000 zone.
• BTC is following a key bullish trend line with support at $90,300 on the 4-hour chart.
• Gold prices started a recovery wave above the $2,600 zone.
• GBP/USD is showing bearish signs below the 1.2700 resistance.

Bitcoin Price Technical Analysis

Bitcoin price remained in a strong uptrend above the $88,000 resistance zone. BTC/USD is consolidating gains and the bulls could soon aim for a move toward $100,000.

Looking at the 4-hour chart, the price climbed higher steadily above the $80,000 and $85,000 resistance levels. The price even settled above the $85,000 zone, the 200 simple moving average (green, 4 hours), and the 100 simple moving average (red, 4 hours).

A new all-time high was formed at $93,346 and the price is now consolidating gains. There was a minor pullback, and the price tested the 23.6% Fib retracement level of the upward move from the $66,780 swing low to the $93,346 high.

However, the bulls are active above the $88,000 level. There is also a key bullish trend line forming with support at $90,300 on the same chart.

On the upside, the price could face resistance near the $93,500 level. The next key resistance is $95,000. A successful close above $95,000 might start another steady increase. In the stated case, the price may perhaps rise toward the $98,800 level or even $100,000.

If not, there might be another downside correction. Immediate support is near the $90,000 level and the trend line. The next key support sits at $88,000.

A downside break below $88,000 might send Bitcoin toward the $85,000 support. Any more losses might send the price toward the $80,000 support zone or the 50% Fib retracement level of the upward move from the $66,780 swing low to the $93,346 high.

Looking at GBP/USD, the pair saw a lot of bearish moves and now struggles to recover above the 1.2700 resistance zone.

Today’s Economic Releases

• Fed's Cook speech.
• Fed's Bowman speech.

Australia's Westpac Leading Index moved decisively into positive territory in October, rising from -0.20% in September to +0.26%.

This marks a significant shift, as the index had been hovering in slight negative territory, between -0.3% and flat, for most of the past year. The October reading is not only the first clear above-trend result since November 2023 (+0.16%) but also the strongest since July 2022 (+0.63%).

The improvement in the index provides a "constructive signal" for the economy’s future momentum. Westpac’s outlook aligns with this shift, forecasting an acceleration in economic growth from a nadir of 1.0% in mid-2024 to 1.5% by year-end and 2.4% by the end of 2025.

Full Australia Westpac leading index release here.

Japan's exports rose 3.1% yoy in October, reaching JPY 9,427B, a strong recovery from the -1.7% yoy decline in September, which marked a 43-month low.

This rebound was primarily driven by a 1.5% yoy increase in shipments to China, buoyed by strong demand for chipmaking equipment. However, exports to the US, Japan's largest trading partner, fell -6.2% yoy, reflecting weakness in auto shipments.

On the import side, growth remained modest at 0.4% yoy, totaling JPY 9,888B. This resulted in a trade deficit of JPY -461B for the month, the fourth straight month of shortfall.

Seasonally adjusted data showed exports declining -0.7% mom to JPY 8,882B, while imports ticked up 0.2% mom to JPY 9,239B, leading to a seasonally adjusted trade deficit of JPY -358B.

Full Japan trade balance release here.

Kansas City Fed President Jeffrey Schmid highlighted in a speech overnight the decision to lower rates this year as a reflection of the "growing confidence" in inflation’s moderation.

This optimism, he explained, stems from signs that "both labor and product markets have come into better balance in recent months."

While acknowledging this progress, Schmid cautioned, “It still remains to be seen how much further interest rates will decline or where they might eventually settle.”

Schmid also addressed concerns about the implications of large fiscal deficits on monetary policy. He emphasized that such deficits are not inherently inflationary, as long as Fed maintains its commitment to the 2% inflation target.

However, he warned that this approach could necessitate "persistently higher interest rates," creating tensions with political authorities. He noted, “History has shown that efforts to avoid higher interest rates by accommodating deficits often result in higher inflation.”

• S&P 500 index reversed from support zone
• Likely to rise to resistance level 6000.00

S&P 500 index recently reversed up from the pivotal support level 5850.00 (former multi-day resistance from October).

The support level 5850.00 was further strengthened by the lower daily Bollinger Band, support trendline from August and the 50% Fibonacci correction of the upward impulse from the start of November.

Given the clear daily uptrend, S&P 500 index can be expected to rise to the next round resistance level 6000.00.

• EURCAD reversed from resistance level 1.4885
• Likely to fall to support level 1.4750

EURCAD currency pair recently reversed down from the resistance level 1.4885 (which is the lower border of the wide sideways price range inside which the pair has been trading from July, acting as the resistance after it was broken earlier).

The downward reversal from the resistance level 1.4885 stopped the previous intermediate ABC correction (2) from the end of last week.

Given the strongly bearish euro sentiment seen today, EURCAD currency pair can be expected to fall to the next support level 1.4750.