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In focus today

Attention shifts to French politics as the minority government faces a crucial test in passing a social security bill, which could trigger a no-confidence vote against the government. Previously reliant on tacit support from the National Rally, tensions have risen since Thursday last week, where they called the current proposal "unacceptable". Hence, uncertainty remains in French politics, and it remains unclear if the concessions from Barnier will be enough to satisfy the National Rally. For an in-depth analysis, refer to our recent article, Weekly Focus - Political risks rise again in France, 29 November.

In Sweden, we get manufacturing PMI for November at 08:30. Compared to the major euro economies where PMIs are well below 50, the Swedish manufacturing sector has held up relatively well (October at 53.1). 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.

This afternoon, the US ISM Manufacturing index is due for release. Flash PMIs for November was below 50, although they showed slight improvement.

The week ahead will be dominated by US data releases, including JOLTs, ADP and ISM services. On Friday consensus expects the US jobs report to show a rebound in the employment growth of 200k, while we call for 165k. The FOMC's blackout period before the December meeting begins on Saturday, yet prior to that, a long list of public remarks is scheduled for the week.

In the euro area, unemployment figures are released on Tuesday, while we receive retail sales data on Thursday. We will also have revisited Q3 GDP figures on Friday, which will include details on the growth composition.

Economic and market news

What happened over the weekend

In the US, president-elect Donald Trump threatened the BRICS countries with tariffs of 100%, if the group continues to work on a global alternative to the US dollar. Trump requires a commitment from the countries to neither create a new currency, nor back any other currency to replace 'the mighty US dollar'. The threats aimed at the BRICS follow similar warnings of steep tariff increases on China, Mexico and Canada earlier last week.

In the euro area, HICP inflation rose to 2.3% y/y in November as expected (cons: 2.3%, prior: 2.0%). The increase in headline inflation was mainly due to base effects on energy inflation. Core inflation rose less than expected to 2.7% y/y (cons: 2.8%, prior: 2.7%). Most importantly, service prices increased only around 0.10% m/m seasonally adjusted in a positive sign for the ECB. Our 3m/3m SAAR measure of momentum declined to 2.7% in November from 3.4%. Hence, the trend lower in momentum of underlying inflation continued in November, which supports further rate cuts by the ECB.

In Sweden, Friday's Q3 GDP surprised upside at 0.3% q/q and 0.7% y/y (cons: -0.1%, 0.1%, prior: -0.1%, -0,1%). The strong reading corroborates the positive NIER confidence data from last Thursday, hinting that the October decline in the NIER survey might have been an anomaly. Additionally, October's retail sales data also came in positive at 0.4% m/m and 0.9% y/y (prior: 0%, 2.1%), suggesting a recovering retail sector on the back of improving sentiment among households and in the retail trade sector continued to improve in yesterday's NIER survey.

In China, both measures of PMIs came out marginally better than expected in November. The official PMIs showed a marginal uptick in the manufacturing index, which printed at 50.3 (cons: 50.2, prior: 50.1), while the non-manufacturing index dropped to 50 (prior: 50.2) and finally composite at 50.8 (prior: 50.8). Additionally, the Caixin manufacturing PMIs surpassed expectations at 51.5 (cons: 50.5, prior: 50.3), with both new orders and employment rising. The positive readings follow the efforts from the government to support growth through the recent round of stimulus, which appears to be starting to take effect.

In the Middle East, rebels captured much of the Syrian capital Aleppo over the weekend, sparking renewed tensions in the region. President al-Assad has promised to restore order 'with the help of friends and allies', which suggests that the regime is awaiting support from Russia, Iran and Hezbollah to regain control. According to Bloomberg, the rebel alliance consists of Hayat Tahrir al-Sham, once linked to Al Queda, and several Turkish-backed groups.

Equities: Global equities were higher on Friday, with gains across most regions and all sectors. With last week's stellar performance, we saw several indices setting new all-time highs, with November performance particularly driven out of the US. Although the US elections now seem distant, we must recall that just a month ago the VIX was above 20, accompanied by a considerable amount of uncertainty. Following last week's drop, the VIX ended close to 13, and investors are now considerably more confident and feel much less uncertain, which largely explains the substantial equity returns harvested in November. It is also worth noting that November's performance was not just driven by the MAG 7; the best performing sector was financials, and the best performing style was small caps. In the US on Friday, the Dow was up by 0.4%, the S&P 500 by 0.6%, Nasdaq by 0.8%, and the Russell 2000 by 0.4%. This morning, most Asian markets are higher, led by Taiwan. US futures are marginally lower, while European futures are starting the week almost 1% lower.

FI: Friday last week, European rates continued the almost uninterrupted streak of decline through November. The entire German curve has essentially shifted 30bp down across all tenors with the 10y Bund yield ending at 2.08%. We have another busy week ahead of us with tap auctions from Germany, France and Spain. Reading the Markets EUR - Look out for funding statements in December, 29 November. In France, tensions are building with Le Pen intensifying the language and potentially going for a no-confidence vote, following intense disagreement on the budget. The French-German spread has tightened some 5-6bp since the midle of last week, but still stands at a wide 80bp spread. We do not expect a material tightening from here.

FX: EUR/USD traded about one figure higher last week, fluctuating within the 1.05-1.06 range, as the broad USD had its largest weekly drop in three months. This week, a packed US calendar is set to prove pivotal for the Fed's December meeting and by extension for EUR/USD. USD/JPY slid down towards the 149-mark in a week when the JPY saw broad gains as market expectations for a BoJ rate hike in December gained traction. Friday's set of data releases out of Norway failed to deliver any significant news to our macro- or FX-narrative for Norway: private goods consumption remaining weak, unemployment grinding modestly higher and an unchanged pace of Norges Bank fiscal FX transaction purchase into December. We remain strategically bearish on the NOK.

Daily Pivots: (S1) 1.0548; (P) 1.0572; (R1) 1.0603; More...

EUR/USD dips mildly ahead of 1.0609 resistance, but stays well above 1.0330 support. Intraday bias remains neutral first. For now, further decline is still in favor 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.

Dollar started the week on strong footing, buoyed by a combination of technical factors and geopolitical developments. Technically, the greenback bounced after failing to break through near-term support level against Euro last week. Escalating political and trade tensions is giving further fuel to Dollar's rise.

Over the weekend, US President-elect Donald Trump stirred market attention with a direct demand to BRICS nations, calling for a halt to any plans for a new currency alternative to Dollar. Trump warned on social media that such moves would trigger "100% tariffs" and potentially end these nations’ ability to sell into the "wonderful US economy", underscoring his intent to preserve the "mighty US dollar" as the dominant global currency.

Adding to Dollar's momentum, reports indicate that the US is launching Biden administration's final large-scale efforts on China's semiconductor industry. According to sources cited by Reuters, the new measures include restricting exports to 140 Chinese companies, imposing curbs on shipments of high-bandwidth memory chips critical for AI training, and limiting advanced chipmaking tools and software. The initiative, targeting sectors critical to artificial intelligence and military advancements, underscores ongoing US-China trade tensions, which persist across multiple administrations.

In terms of currency performance, Dollar is currently the strongest, followed by Australian Dollar and Canadian Dollar. Japanese Yen is the weakest performer, trailed by Euro and Swiss Franc, while British Pound and New Zealand Dollar are holding middle positions. Global financial markets are bracing for significant volatility this week, with top-tier US economic data releases on the horizon, including ISM manufacturing and services indexes and non-farm payroll report.

Technically, USD/CNH jumped notably today as near term rally from 6.9709 resumed through 7.7276. This development aligns with the view that medium term correction from 7.3679 (2023 high) has completed with three waves down to 6.9709. Further rise is expected as long as 7.2279 support holds. Break of 7.3111 resistance will pave the way to 7.3679 or further to 7.3745 (2022 high). A key to watch is whether the next decline in Yuan's exchange rate would prompt the Chinese government for some form of intervention.

In Asia, at the time of writing, Nikkei is up 0.66%. Hong Kong HSI is up 0.20%. China Shanghai SSE is up 0.93%. Singapore Strait Times is up 0.29%. Japan 10-year JGB yield is up 0.0264 at 1.079.

Japan's PMI manufacturing finalized at lowest since March, but optimism grows for 2025 recovery

Japan’s Manufacturing PMI was finalized at 49.0 in November, down from October’s 49.2, marking its lowest reading since March. The decline reflects ongoing challenges, with weaker demand leading to sustained declines in new orders and production levels.

S&P Global Market Intelligence’s Usamah Bhatti described the sector’s performance as "downbeat," noting subdued capacity pressures and firms reducing employment for the first time in nine months due to the lack of demand-driven growth.

Cost inflation remained elevated in November, prompting manufacturers to increase selling prices at a stronger rate to protect margins.

However, firms remain optimistic about the future, with confidence reaching its highest level since August. Optimism is supported by expectations of domestic and global economic recovery, alongside planned new product launches that could drive future sales.

Separately, capital spending rose 8.1% yoy in Q3, exceeding expectations of 6.7% yoy and accelerating from Q2’s 7.4% yoy growth. This marks the fastest annual growth in investment since Q4 last year, providing a silver lining amid subdued manufacturing activity.

Australia’s retail sales beat expectations with 0.6% mom growth in Nov

Australia’s retail sales increased by 0.6% month-on-month to AUD 36.7B in November, surpassing the forecasted 0.4% mom rise. On a year-on-year basis, sales grew 3.4% yoy, supported by early Black Friday promotions.

Strong gains were seen in non-food categories, with other retailing up 1.6% and household goods retailing rising 1.4%, driven by demand for electronics like televisions. However, declines were noted in clothing, footwear, and personal accessories (-0.6%) and department stores (-0.3%).

Food-related sectors also performed well, with cafes, restaurants, and takeaway services rising 0.3% for the third consecutive month. Food retailing rebounded 0.3%, led by a 1.7% jump in liquor sales, returning turnover to July 2024 levels.

China’s Caixin PMI manufacturing rises to 51.5, confidence grows but challenges in jobs persist

China’s Caixin Manufacturing PMI climbed to 51.5 in November, up from 50.3 in October and surpassing expectations of 50.5. This marks the fastest pace of growth since June, driven by a rebound in new orders, which rose at their quickest pace since February 2023, alongside renewed export growth. Output price inflation reached a 13-month high, and business confidence strengthened to its highest level in eight months.

Wang Zhe, Senior Economist at Caixin Insight Group, highlighted that manufacturers increased supply to meet expanded demand, with businesses purchasing more to build inventories. Input costs and output prices also rose, while supply chains remained stable.

However, employment continued to contract, underscoring lingering challenges. Wang noted that the economy faces "prominent downward pressure," with the government's stimulus measures yet to significantly impact the labor market and workforce expansion.

Markets Focus on U.S. Payrolls, Global Data as Central Banks Weigh Next Moves

As Fed's final rate decision of the year looms, markets are gearing up for a pivotal week of economic data. Among the highlights is the US non-farm payrolls report, which will heavily influence the Fed’s next move. Currently, fed fund futures suggest a 66% chance of a 25bps rate cut to 4.25-4.50%, but these expectations could shift sharply after the NFP release. October’s lackluster job growth of just 12k was widely attributed to disruptions from hurricanes and strikes, making November’s data critical in determining whether the labor market’s underlying strength persists. Additionally, ISM manufacturing and services indexes are also on the radar

Globally, attention turns to Swiss CPI, Australian GDP, and Canadian employment figures, each of which could drive significant policy and market reactions.

In Switzerland, deflation risks persist due to strong Franc and weak demand from the EU. SNB President Martin Schlegel recently remarked, “When Germany has a cold, Switzerland has the flu,” underscoring Switzerland’s reliance on its largest EU trading partner. With these pressures, another SNB rate cut in December is expected. The key question is whether the adjustment will be more aggressive.

In Australia, RBA remains steadfast in its restrictive stance, as reinforced by its recent minutes. RBA emphasized that significant cooling in the labor market is needed to balance demand and supply, which would also temper wage growth. While this could slow economic expansion, inflation concerns keep rate cuts off the table for now.

Meanwhile, in Canada, BoC is likely to remain on its fast track toward neutral interest rates, with another 50bps rate cut expected next week. Continued soft employment data, particularly a rising unemployment rate, would solidify this expectation.

Here are some highlights for the week:

• Monday: New Zealand building permits; Japan capital spending, PMI manufacturing final Australia retail sales, building approvals; Swiss retail sales, PMI manufacturing; Eurozone PMI manufacturing final, unemployment rate; UK PMI manufacturing final; US ISM manufacturing.
• Tuesday: New Zealand terms of trade; Japan monetary base; Australia current account; Swiss CPI.
• Wednesday: Australia GDP; China Caixin PMI services; Eurozone PMI services final, PPI; UK PMI services final; US ADP employment, ISM services, factor orders, Fed's Beige Book report.
• Thursday: Australia trade balance; Swiss unemployment rate; Germany factory orders; France industrial production; UK PMI construction; Eurozone retail sales; Canada trade balance, Ivey PMI; US Challenger job cuts, trade balance, jobless claims.
• Friday: Japan labor cash earnings, household spending, leading indicators; Germany industrial production, trade balance; Swiss foreign currency reserves; Eurozone GDP revision; Canada employment; US non-farm payrolls, U of Michigan consumer sentiment.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0548; (P) 1.0572; (R1) 1.0603; More...

EUR/USD dips mildly ahead of 1.0609 resistance, but stays well above 1.0330 support. Intraday bias remains neutral first. For now, further decline is still in favor 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.

Australia’s retail sales increased by 0.6% month-on-month to AUD 36.7B in November, surpassing the forecasted 0.4% mom rise. On a year-on-year basis, sales grew 3.4% yoy, supported by early Black Friday promotions.

Strong gains were seen in non-food categories, with other retailing up 1.6% and household goods retailing rising 1.4%, driven by demand for electronics like televisions. However, declines were noted in clothing, footwear, and personal accessories (-0.6%) and department stores (-0.3%).

Food-related sectors also performed well, with cafes, restaurants, and takeaway services rising 0.3% for the third consecutive month. Food retailing rebounded 0.3%, led by a 1.7% jump in liquor sales, returning turnover to July 2024 levels.

Full Australia's retail sales release here.

China’s Caixin Manufacturing PMI climbed to 51.5 in November, up from 50.3 in October and surpassing expectations of 50.5. This marks the fastest pace of growth since June, driven by a rebound in new orders, which rose at their quickest pace since February 2023, alongside renewed export growth. Output price inflation reached a 13-month high, and business confidence strengthened to its highest level in eight months.

Wang Zhe, Senior Economist at Caixin Insight Group, highlighted that manufacturers increased supply to meet expanded demand, with businesses purchasing more to build inventories. Input costs and output prices also rose, while supply chains remained stable.

However, employment continued to contract, underscoring lingering challenges. Wang noted that the economy faces "prominent downward pressure," with the government's stimulus measures yet to significantly impact the labor market and workforce expansion.

Full China Caixin PMI manufacturing release here.

Japan’s Manufacturing PMI was finalized at 49.0 in November, down from October’s 49.2, marking its lowest reading since March. The decline reflects ongoing challenges, with weaker demand leading to sustained declines in new orders and production levels.

S&P Global Market Intelligence’s Usamah Bhatti described the sector’s performance as "downbeat," noting subdued capacity pressures and firms reducing employment for the first time in nine months due to the lack of demand-driven growth.

Cost inflation remained elevated in November, prompting manufacturers to increase selling prices at a stronger rate to protect margins.

However, firms remain optimistic about the future, with confidence reaching its highest level since August. Optimism is supported by expectations of domestic and global economic recovery, alongside planned new product launches that could drive future sales.

Separately, capital spending rose 8.1% yoy in Q3, exceeding expectations of 6.7% yoy and accelerating from Q2’s 7.4% yoy growth. This marks the fastest annual growth in investment since Q4 last year, providing a silver lining amid subdued manufacturing activity.

Full Japan PMI manufacturing final release here.

Key Highlights

• EUR/USD started an upside correction from the 1.0335 zone.
• It cleared a connecting bearish trend line with resistance at 1.0520 on the 4-hour chart.
• USD/JPY is struggling and might drop below the 148.80 support.
• The US ISM Manufacturing Index could increase from 46.5 to 47.5 in Nov 2024.

EUR/USD Technical Analysis

The Euro formed a base above 1.0350 and started a recovery wave against the US Dollar. EUR/USD cleared the 1.0450 and 1.0500 levels to move into a positive zone.

Looking at the 4-hour chart, the pair surpassed a connecting bearish trend line with resistance at 1.0520 on the same chart. There was a move above the 38.2% Fib retracement level of the downward move from the 1.0936 swing high to the 1.0333 low.

The pair even tested the 100 simple moving average (red, 4-hour). On the upside, the pair could face resistance near the 1.0635 level.

The 50% Fib retracement level of the downward move from the 1.0936 swing high to the 1.0333 low is also near 1.0635. The first major resistance is near the 1.0650 level. A close above the 1.0650 level could set the tone for another increase.

The next major resistance could be the 200 simple moving average (green, 4-hour) at 1.0705, above which the price could climb higher toward the 1.080 resistance.

On the downside, immediate support sits near the 1.0500 level. The next key support sits near the 1.0450 level. Any more losses could send the pair toward the 1.0380 level.

Looking at USD/JPY, the pair remains in a bearish zone and there are chances of more downsides below the 148.80 support.

Upcoming Economic Events:

• Euro Zone Manufacturing PMI for Nov 2024 – Forecast 45.2, versus 45.2 previous.
• UK Manufacturing PMI for Nov 2024 – Forecast 48.6, versus 48.6 previous.
• US Manufacturing PMI for Nov 2024 – Forecast 48.8, versus 48.8 previous.
• US ISM Manufacturing Index for Nov 2024 – Forecast 47.5, versus 46.5 previous.

• Natural gas reversed from support zone
• Likely to rise to resistance level 3.550

Natural gas recently reversed up from the support zone located between the support level 3.150 (former multi-month high from May, June and October), 20-day moving average and the 50% Fibonacci correction of the upward impulse 1 from the start of November.

The upward reversal from the support level 3.150 stopped the previous minor correction 2 – which belongs to wave (3) from the start of November.

Given the clear daily uptrend, Natural gas can be expected to rise to the next resistance level 3.550 (which stopped the previous sharp impulse wave 1 earlier this month).

EURJPY broke support zone
•  Likely to fall to support level 156.00

EURJPY currency pair recently broke the support zone located between the support level 160.00 and the 61.8% Fibonacci correction of the upward impulse from September.

The breakout of the support level 160.00 accelerated the C-wave of the active ABC correction (2) from the end of October.

Given the clear daily downtrend, EURJPY currency pair can be expected to fall to the next support level 156.00 (which reversed the price sharply in August and September).