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Switzerland’s inflation data for November showed CPI falling -0.1% mom, matching expectations and mirroring October’s pace. Core CPI, which excludes volatile items like fresh and seasonal products, energy, and fuel, was flat on a monthly basis. Price movements showed domestic products falling -0.1% mom, while imported product prices dropped -0.4% mom.

On an annual basis, CPI edged up slightly from 0.6% yoy to 0.7% yoy, stabilizing after a downward trend since May, but falling short of market expectations of 0.8% yoy. Core CPI also rose modestly from 0.8% yoy to 0.9% yoy. Domestic product prices saw a slight decline from 1.8% yoy to 1.7% yoy, while imported product prices recovered somewhat, rising from -3.1% yoy to -2.3% yoy.

Full Swiss CPI release here.

Daily Pivots: (S1) 1.0448; (P) 1.0511; (R1) 1.0560; More...

Intraday bias in EUR/USD remains neutral for the moment, and outlook stays bearish with 1.0609 resistance intact. On the downside, break of 1.0330 will resume the fall from 1.1213. Also, sustained trading below 1.0404 key fibonacci level will carry larger bearish implication. Nevertheless, firm break of 1.0609 will confirm short term bottoming, and turn bias back to the upside for 1.0760 support turned resistance first.

In the bigger picture, immediate focus is now on 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404. Strong rebound from this level will keep price actions from 1.1273 (2023 high) as a medium term consolidation pattern only. However, sustained break of 1.0404 will raise the chance that whole up trend from 0.9534 has reversed. That would pave the way to 61.8% retracement at 1.0199 first. Firm break there will target 0.9534 low again.

Daily Pivots: (S1) 148.86; (P) 149.81; (R1) 150.53; More...

With 151.94 minor resistance intact, further decline is expected in USD/JPY. Sustained trading below 38.2% retracement of 139.57 to 156.74 at 150.18 will argue that whole rise from 139.57 could have completed. Deeper fall should then be seen to 61.8% retracement at 146.12 next. On the upside, break of 151.94 will turn bias back to the upside for stronger rebound instead.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 1.2599; (P) 1.2671; (R1) 1.2724; More...

Outlook in GBP/USD is unchanged and intraday bias remains neutral for the moment. While another rise cannot be ruled out, outlook will stay bearish as long as 55 D EMA (now at 1.2858) holds. Below 1.2615 minor support will turn intraday bias back to the downside for retesting 1.2486. Break there will resume whole fall from 1.3433.

In the bigger picture, a medium term top should be in place at 1.3433, and price actions from there are correcting whole up trend from 1.0351 (2022 low). Deeper decline is now expected as long as 55 D EMA (now at 1.2867) holds, to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. Strong support should be seen there to bring rebound.

Daily Pivots: (S1) 0.8814; (P) 0.8852; (R1) 0.8903; More…

Intraday bias in USD/CHF stays neutral as range trading continues below 0.8956. With 0.8800 support intact, further rally remains in favor. On the upside, break of 0.8956 will resume the rally from 0.8374, and target 0.9223 key resistance next. However, firm break of 0.8800 will confirm short term topping and turn bias back to the downside for 55 D EMA (now at 0.8731).

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern. Rise from 0.8374 is seen as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes.

Daily Pivots: (S1) 1.3993; (P) 1.4042; (R1) 1.4094; More...

Range trading continues in USD/CAD below 1.4177 and intraday bias remains neutral for the moment. Further rally is expected with 1.3930 support intact. On the upside, firm break of 1.4177 will resume larger up trend towards 1.4391 projection level. However, break of 1.3926 will turn bias to the downside for deeper pullback to 55 D EMA (now at 1.3864).

In the bigger picture, up trend from 1.2005 (2021) is resuming with break of 1.3976 key resistance (2022 high). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3418 at 1.4391. Now, medium term outlook will remain bullish as long as 1.3418 support holds, even in case of deep pullback.

Markets

EUR/USD was among the worst cross rate performers yesterday. The currency pair dropped as low as 1.046, down from 1.058 at the open. French politics beat the common currency down after PM Barnier forced through part 1 of the budget using article 49.3 through which he circumvented parliament. Both the left and the right bloc in the opposition were against. Shortly after Barnier’s risky move, the far-left party La France Insoumise tabled a motion of no confidence. The far-right (Rassemblement National) said they would support it this time around in frustration of Barnier not incorporating enough of its demands in the bill. A vote and therefore the fall of the government could come as soon as Wednesday. Apart from the euro, French assets suffered. Equities (CAC40) clearly underperformed. OAT spreads vs Bund and swap rose to new 12-year highs. The dollar kept a strong bid overall. A slightly better-than-expected November US manufacturing ISM ahead of more important data later this week triggered little volatility. Influential Fed Waller saying he’s leaning towards a rate cut in December did cause some late-night USD weakness but barely enough for EUR/USD to close the day at 1.05 instead of below. Waller’s comments also capped the Treasury yield rebound to 0.1-3.8 bps. The front-end underperformed even as such a 25 bps rate is still not fully discounted. Rates in Europe dropped around 5-6 bps across the curve, both in Germany and in swap. Euro weakness filtered through in EUR/GBP too, dropping to an intraday low of 0.827 but closing around 0.83. JPY eked out small gains against the dollar (< USD/JPY 150) while showing a stronger performance against the rest of G10 peers. It’s backtracking a bit on those gains this morning. The Chinese yuan continues to trade in the defensive. USD/CNY jumped to the highest level since November last year, just below 7.3. Usual suspects for CNY weakness include ongoing economic worries, sliding Chinese yields & the US tariff threat. Next week’s annual Central Economic Work Conference is the next high-profile meeting to watch for clues on next year’s growth target and stimulus plans. Today is an in-between in terms of economic data. On the FX side we remain cautious on the euro in a daily and short-term perspective. Geopolitics, national politics, the economy or monetary policy, neither is looking good for the common currency for now. EUR/USD 1.0335 (November low) is the key reference. European yields have dropped sharply but we wouldn’t row against the tide. Germany’s 10-yr is closing in on 2%. We do look out for US yields at the long end of the curve to show signs of bottoming out after the recent correction on the Trump-trade.

News & Views

Inflation in South Korea printed lower than expected. Both the headline and core inflation stayed below the 2.0% target of the Bank of Korea. Headline inflation declined -0.3% M/M, but unfavorable base effects caused the Y/Y figure to rise from 1.3% to 1.5%. Markets expected a 1.7% Y/Y rise. Core inflation (ex. food and energy prices) rose marginally from 1.8% to 1.9%. The Bank of Korea last week unexpectedly cut its policy rate by 25 bps for the second consecutive meeting, bringing the policy rate to 3.0%. The BoK further prioritized growth in its policy assessment as inflation shows further signs for easing. Uncertainty on the impact of trade protectionism for the economy probably was a factor behind the unexpected rate cut alongside risks to domestic demand from consumers being hampered by a high debt load. Today’s lower than expected inflation keeps the door open of addition easing in Q1 next year. The won recently also suffered from a strong dollar and at USD/KRW 1403 is holding the YTD low within reach.

October UK retail sales showed a disappointing performance in November according the BRC sales monitor for November. Sales declined 3.3% compared to the same month last year (same store sales -3.4% Y/Y). Total sales were up 0.6%Y/Y in October. The November reading was the weakest since April of this year. Food sales were up 2.4% Y/Y but non-food sales declined 2.1% Y/Y in the three months to November. Interpretation of the data is complicated as Back Friday sales this year were not included in the November figure but will be part of the December publication. Still the data suggest a poor sales dynamics. Higher energy prices due to lifting the cap in energy bills and low consumer confidence are as mentioned as potential explanation for the poor performance of non-food sales.

France has stepped into the crisis mode after a series of events - that included budget concessions to make Le Pen happy - ended with Le Pen not being happy. Consequently, Barnier used a constitutional tool to push his unpopular budget bill without a parliamentary vote and Le Pen said that she would take his government down by joining the leftists in a no-confidence motion. In summary, the things will probably get messier in France before they get better.

Interestingly, the market’s reaction to the latest drama was lighter-than-I-would-expect for a country that risks losing its hardly-funded government in the next days, and risks a potential government shutdown in the coming weeks. The French 10-year yield fell to the lowest in two months and the CAC 40 closed the session near flat. But wait, the spread between the 10-year French and German yields jumped to 87bp – the highest since the euro debt crisis of a decade ago, and could well spike above the 100bp mark if the French political crisis is not contained. The widening French-German yield spread hammered the single currency on Monday. The EURUSD sharply dropped to 1.0460 and will certainly remain under the pressure of the French drama – among other problems on the continent. Stellantis CEO quit yesterday on tumbling sales and profit causing the shares to drop more than 6%, and around 66’000 VW workers abandoned their posts on failure to agree how to slash costs to avoid factory closures. Selloff in VW shares remained curiously limited.

PS: Crisis equals opportunities that will allow some investors to buy French, and broader European assets at discounted prices. So next weeks will be about watching and chasing a dip for many investors. The widening valuation gap between the US and European equities looks interesting for those who believe that the two continents can not diverge forever.

What happens in Europe stays in Europe

The S&P500 printed this year’s 54th record high on Monday, as record Black Friday sales came as another proof that Americans continue to spend. Nasdaq 100 jumped more than 1% to near an ATH. Intel gained and erased gains on news that its CEO was forced to retire on failure to turn the company’s fortunes around, and watch the competition eat into its market share. All eyes are on what the new CEO will do with the foundry business. Intel could spin it off to better compete with the Nvidia – which only designs its chips and lets the others build. But the company’s foundry business could be a good source of revenue and give Intel a competitive advantage within the ‘America First’ narrative

In the FX, the USD index rose as the euro sold off sharply and Trump warned BRICS against replacing the US dollar by a common currency. The USDJPY tested the 100-DMA support, near 149, to the downside but rebounded back above the 150 level. The bets that the Bank of Japan (BoJ) could announce another rate hike before the year-end keeps the yen bulls alert, but levels below 150 may be too enthusiastic provided the BoJ’s potential to deliver a dovish hike that would limit the yen’s appreciation.

In the bonds space, the 10-year JGB yield is pushing higher and the euro 10-year yield is pushing lower on expectation that the European Central Bank (ECB) must cut more-than-otherwise to contain the French crisis and to give support to the struggling European economies amid slow growth and a growing tariff threat from the US. The latter should continue to support a further downside in the EURJPY. In the US, the 2-year yield consolidates near the 4.20% mark, and the probability of a 25bp cut from the Federal Reserve (Fed) in the December meeting is up to almost 75% after the Fed’s Waller said that he would back a 25bp cut in the December meeting. For those who are still interested – and think that the data is worth something in Fed’s decision making – the US announced a set of better-than-expected PMI numbers yesterday and is expected to print higher job openings for October and better optimism for December. Strong data should – in theory - tame a part of the dovish Fed expectations, but the market wants to see another 25bp cut from the Fed in December and the Fed is happy to align. Whether it will limit the USD’s upside potential remains uncertain, but with strong data, it seems unlikely.

In energy, US crude gave back the early week gains yesterday, as the failure to clear the $70pb offers brought in the top sellers near this level. The downside potential should be limited and price rebounds could be expected on hope that OPEC would delay – or even scrap – its plans to restore production in early 2025. But OPEC alone could hardly turn around the market. Therefore, price rallies will continue to offer interesting levels to strengthen medium-term bearish positions.

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.