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Markets

A solid 10-year Japanese bond auction this morning calmed down global core bond markets jitters after yesterday’s rout. But the underlying market forces are quelled for now, not at all dead. With the BoJ normalizing policy, rising Japanese yields offer an increasingly attractive alternative in a market already stretched by a huge supply (government, corporate) & demand (exit central banks) mismatch which back all sorts of risk premia. Core bonds remain under pressure, be it not to the same extent as yesterday, with underperformance at the long end. US yields add up to 2.5 bps. Bunds marginally underperforming vs swap. The latter 10-year and 30-year variants hold around the 2.8% and 3.1% (+) cycle highs. The 2-year swap yield is pouncing on the 2.2% November high. European inflation numbers came in slightly above expectations at 2.2% and 2.4% for headline and core respectively. Services inflation rose to a 7-month high of 3.5%. If anything, they confirm the ECB’s expected prolonged status quo at 2%. French OATs lag peers today following reports that Lecornu’s social security budget won’t get backing by Horizons in an upcoming vote December 9. Being part of the coalition government, Horizon’s lack of support underscores the extreme fragility in French politics. Gilts in the UK live up to their reputation by underperforming whenever (credit) risk premia pop up. UK yields rise 1.1-3 bps, further undoing last week’s relief rally after Chancellor Reeves presented the (spend-now-pay-later) November Budget. Equity markets fare a bit better than yesterday. An improving risk appetite is pushing the likes of the EuroStoxx50 0.4% higher. A potential key market moving event, particularly for European (risk) assets, takes place after European closing hours though with US envoy Witkoff meeting Russian president Putin for talks starting 7pm CET. The outcome is anyone’s guess but a positive one may support CE FX in first instance but also the euro vs USD. EUR/USD currently is going nowhere around, 1.161. JPY fully wiped out yesterday’s gains by trading back around USD/JPY 156. Just as with gilts, sterling’s relief rally quickly ran out of steam. EUR/GBP is keen on recovering the 0.88 big figure again.

News & Views

The Bank of England (BoE) today published its semi-annual financial stability report. The Financial Policy Committee assesses that risks have increased during 2025. Key sources include geopolitical tensions, fragmentation of trade and financial markets, and pressures on sovereign debt markets. Many risky asset valuations, especially in AI-related sectors are stretched. Corrections can spill over to broader credit markets with credit spreads considered stretched by historical standards. While the UK remains exposed to global shocks, UK household and corporate aggregate indebtedness is seen as remaining low. The UK banking system is well capitalized, maintains robust liquidity and funding positions, and asset quality remains strong. This allowed to central bank to reduce the Tier 1 capital ratio to 13% from 14%. In the context of heightened geopolitical tensions and continued advances in technology, the Committee underlines the critical importance of operational resilience on order to continue the provision of vital services to households and business. Regarding a specific topic related to market based funding, the Committee elaborated on rising leveraged borrowing by hedge funds in gilt repo markets. Activity of those funds rose close to £ 100 bln and at least part of it is related to a popular cash-futures base trade. A small number of hedge funds account for more than 90% of net gilt repo borrowing, with trades often at (near-)zero collateral haircuts and at very short maturities and so require regular refinancing. These vulnerabilities, in the context of compressed risk premia in a highly uncertain global environment, increase the risk of sharp moves.

Growth in South Africa increased by 0.5% Q/Q and 2.1% Y/Y in Q3, following a 0.9% quarterly rise in Q2. Trade catering and accommodation increased 1.0% Q/Q, mining and quarrying increased 2.3%. Financing, real estate and business services grew by 0.3%. The manufacturing industry increased by 0.3% while agriculture, forestry and fishing industry increased by 1.1%. On the demand side, household consumption increased by 0.7%, contributing 0.5ppt to the total growth. Gross fixed capital formation increased by 1.6% (after three negative quarters), contributing 0.2ppt. Net exports contributed negatively (-0.4 ppt) amid faster imports of goods and services by 2.2%. The reaction of the rand to the GDP data was modest. At USD/ZAR 17.11 the South-African currency maintains most of its post-Liberation/YTD gains (+ 10.1% YTD against the dollar; but a loss of 1.8% YTD against the euro).

Daily Pivots: (S1) 1.1582; (P) 1.1617; (R1) 1.1644; More….

Intraday bias in EUR?USD remains neutral for the moment. On the upside, decisive break of 1.1655 will complete a head and should bottom pattern (ls: 1.1540, h: 1.1467, rs: 1.1490). That would argue that whole fall from 1.1917 has completed as a correction. Further rise should then be seen to 1.1727 resistance first. On the downside, though, below 1.1554 will turn bias to the downside for 1.1490 support first.

In the bigger picture, considering bearish divergence condition in D MACD, a medium term top is likely in place at 1.1917, just ahead of 1.2 key psychological level. As long as 55 W EMA (now at 1.1345) holds, the up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2000 will carry larger bullish implications. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.

Daily Pivots: (S1) 0.8013; (P) 0.8031; (R1) 0.8067; More…

Intraday bias in USD/CHF is turned neutral first with current recovery. Outlook is unchanged that price actions from 0.7828 low is seen as a corrective pattern. On the upside, above 0.8070 will indicate that pattern is still extending, and turn bias back to the upside for 0.8123 and above. On the downside, below 0.7995 will bring deeper fall back towards 0.7877 support.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8332 support turned resistance holds (2023 low).

Daily Pivots: (S1) 154.71; (P) 155.43; (R1) 156.21; More...

Intraday bias is turned neutral first with current recovery. With near term channel floor intact, further rally is expected. Above 156.57 minor resistance will bring retest of 157.88. Further break there will resume the whole rally from 139.87. Next target is 158.86 structural resistance, and then 161.94 high. However, sustained break of the channel support will bring deeper correction to 55 D EMA (now at 152.86), and raise the chance of near term trend reversal.

In the bigger picture, current development suggests that corrective pattern from 161.94 (2024 high) has completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94 high. Decisive break of 158.85 structural resistance will solidify this bullish case and target 161.94 for confirmation. On the downside, break of 150.90 resistance turned support will dampen this bullish view and extend the corrective range pattern with another falling leg.

Daily Pivots: (S1) 1.3188; (P) 1.3232; (R1) 1.3257; More...

GBP/USD's break of 1.3199 minor support argues that recovery from 1.3008 might have completed as a three-wave corrective move to 1.3274. That came after touching 55 D EMA (now at 1.3265). Intraday bias is back on the downside for retesting 1.3008 low. On the upside, however, sustained trading above 55 D EMA should confirm that fall from 1.3787 has completed. Further rise should then be seen to 1.3725/3787 resistance zone.

In the bigger picture, the break of 55 W EMA (now at 1.3184) is taken as the first sign that corrective rise from 1.0351 (2022 low) has completed. Decisive break of trend line support (now at 1.2760) will solidify this case and target 38.2% retracement of 1.0351 to 1.3787 at 1.2474 next. Meanwhile, in case of another rise, strong resistance should emerge below 1.4248 (2021 high) to cap upside to preserve the long term down trend.

Sterling weakened slightly today as markets digested last night’s abrupt resignation of OBR Chair Richard Hughes, who stepped down following the premature release of budget documents last week. Investors viewed the episode as destabilizing for an institution designed to promote fiscal transparency and market confidence.

There was also a delayed reaction to UK Prime Minister Keir Starmer’s remarks, in which he reiterated his goal of driving inflation lower to enable further rate cuts and reduce business-investment costs.

In contrast, Yen is the worst performer of the day, unwinding much of its earlier gains. Markets initially bid up the currency early in the week on speculation of a possible BoJ rate hike, but enthusiasm has faded quickly. Risk-on sentiment has returned across global markets, removing the defensive bid that had supported JPY.

The re-pricing has shifted the day’s FX rankings, with Aussie on top, followed by Euro and Swiss Franc. Sterling and Kiwi sit near the bottom, while Dollar and Loonie hold middle ground.

The distribution of moves suggests no strong singular narrative is driving markets. Instead, today’s flows reflect a combination of UK political noise, unwinding of BoJ-related bets, and a cautious return of risk-taking in global markets—all contributing to a fragmented and directionless environment across major FX pairs.

In Europe, at the time of writing, FTSE is up 0.15%. DAX is up 0.39%. CAC is up 0.08%. UK 10-year JGB yield is up 0.012 at 4.498. Germany 10-year yield is up 0.009 at 2.765. Earlier in Asia, Nikkei closed flat. Hong Kong HSI rose 0.24%. China Shanghai SSE fell -0.42%. Singapore Strait Times rose 0.26%. Japan 10-year JGB yield fell -0.017 to 1.862.

OECD: Tariffs to weigh on 2026 global growth; inflation to ease

OECD’s latest economic outlook points to a cooling global economy over the next two years as higher effective tariff rates and persistent geopolitical uncertainty weigh on activity.

Global growth is projected to slow from 3.2% in 2025 to 2.9% in 2026 before recovering modestly to 3.1% in 2027. The US is expected to decelerate from 2.0% growth in 2025 to 1.7% in 2026, while the Eurozone will hover near 1.2%–1.4% through 2027. China’s growth is seen easing from 5.0% in 2025 to 4.3% by 2027 as structural and external pressures build.

Near-term momentum is expected to soften as global trade and investment absorb the impact of higher tariffs, weaker confidence, and ongoing policy uncertainty. OECD expects conditions to improve toward late 2026 as the drag from tariffs fades, financial conditions ease, and lower inflation supports demand.

Inflation is expected to continue moderating. Headline CPI across the G20 is projected to fall from 3.4% this year to 2.9% in 2026 and 2.5% in 2027. By mid-2027, inflation is expected to be back to target in most major economies, allowing central banks additional flexibility to support growth if needed.

Eurozone CPI edges higher to 2.2% in November; services rise to 3.5%

Eurozone headline inflation ticked up slightly in November, rising to 2.2% yoy from 2.1% and coming in just above expectations of 2.1%. Core CPI (ex energy, food, alcohol & tobacco) held unchanged at 2.4%, matching forecasts.

Looking at the details, services were the main driver of inflation, climbing to 3.5% from 3.4%. Food, alcohol and tobacco inflation stayed steady at 2.5%. Non-energy industrial goods were unchanged at 0.6%, and energy inflation remained negative at –0.5% but improved from –0.9%.

Labor-market data painted a slightly softer picture. Eurozone unemployment rose to 6.4% in October from 6.3%, missing expectations of 6.3%.

RBNZ's Breman sets tone for Leadership: Mandate discipline and public trust

New RBNZ Governor Anna Breman used her first appearance before a parliamentary committee to underline a back-to-basics approach for the central bank. She said her leadership will be “laser focused” on the core mandate of keeping inflation low and stable, ensuring financial system resilience, and maintaining a safe and efficient payments framework.

Her comments signal an intention to anchor policy discussions firmly around credibility and discipline after a period of volatility in inflation and rate expectations. By highlighting the fundamentals of price stability and financial stability, Breman appears set to build continuity with the bank’s existing stance while strengthening its emphasis on execution and institutional reliability.

Looking into 2026, Breman said "transparency, accountability, and clear communication" will be central pillars of her leadership. She noted that maintaining public trust is critical for the next phase of policy.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3188; (P) 1.3232; (R1) 1.3257; More...

GBP/USD's break of 1.3199 minor support argues that recovery from 1.3008 might have completed as a three-wave corrective move to 1.3274. That came after touching 55 D EMA (now at 1.3265). Intraday bias is back on the downside for retesting 1.3008 low. On the upside, however, sustained trading above 55 D EMA should confirm that fall from 1.3787 has completed. Further rise should then be seen to 1.3725/3787 resistance zone.

In the bigger picture, the break of 55 W EMA (now at 1.3184) is taken as the first sign that corrective rise from 1.0351 (2022 low) has completed. Decisive break of trend line support (now at 1.2760) will solidify this case and target 38.2% retracement of 1.0351 to 1.3787 at 1.2474 next. Meanwhile, in case of another rise, strong resistance should emerge below 1.4248 (2021 high) to cap upside to preserve the long term down trend.

OECD’s latest economic outlook points to a cooling global economy over the next two years as higher effective tariff rates and persistent geopolitical uncertainty weigh on activity.

Global growth is projected to slow from 3.2% in 2025 to 2.9% in 2026 before recovering modestly to 3.1% in 2027. The US is expected to decelerate from 2.0% growth in 2025 to 1.7% in 2026, while the Eurozone will hover near 1.2%–1.4% through 2027. China’s growth is seen easing from 5.0% in 2025 to 4.3% by 2027 as structural and external pressures build.

Near-term momentum is expected to soften as global trade and investment absorb the impact of higher tariffs, weaker confidence, and ongoing policy uncertainty. OECD expects conditions to improve toward late 2026 as the drag from tariffs fades, financial conditions ease, and lower inflation supports demand.

Inflation is expected to continue moderating. Headline CPI across the G20 is projected to fall from 3.4% this year to 2.9% in 2026 and 2.5% in 2027. By mid-2027, inflation is expected to be back to target in most major economies, allowing central banks additional flexibility to support growth if needed.

Full OECD Economic Outlook here.

• Hassett’s chances of becoming Fed chair are growing, and the FOMC may cut rates to 3% in 2026.
• Europe is losing out to the US due to AI, while the BoJ’s rate hike is raising concerns.

Kevin Hassett’s growing chances of becoming Fed chair and weak manufacturing activity statistics have dragged down the US dollar. However, the rally in Treasury yields amid expectations of monetary policy tightening by the Bank of Japan has cooled the enthusiasm of EURUSD bulls. Investors fear that the repatriation of capital to the Land of the Rising Sun, as local assets become more attractive, will lead to a sell-off of US Treasury bonds.

The director of the National Economic Council is closest to Donald Trump and has the best chance of becoming Fed chair. Kalshi gives Kevin Hassett an 82% chance of winning. Kevin Warsh and Christopher Waller are estimated to have a 10% and 4% chance, respectively. As a result of the FOMC being flooded with doves, the risks of aggressive monetary expansion are increasing. The futures market gives a 74% and 45% probability that by the end of 2026, the federal funds rate will fall to 3.25% and 3%, respectively.

The US ISM manufacturing PMI published on Monday went below 50 for the ninth month in a row, indicating a decline in activity, which is a reminder of the negative impact of tariffs on the economy. The damage was less than expected due to large-scale investments in artificial intelligence technology. Europe is unable to compete with the United States in this area. The cost of electricity required for AI in the Old World is approximately twice as high as in the New World. Only a dramatic reduction in this gap could radically change the outlook and encourage EURUSD buyers.

The retreat of the main currency pair from two-week highs is attributed to the rally in 10-year US Treasury yields, which have risen above 4%. Investors fear that Japan, which holds $1.2 trillion in Treasuries, will begin to dump them as local assets become more attractive and capital repatriates to its home country. The growing likelihood of a rate hike by the Bank of Japan in December amid hawkish comments from Kazuo Ueda supports this. As a result, yields on 10-year Japanese bonds have soared to their highest level since 2008.

Rising US Treasury yields and renewed selling of cryptocurrencies have cooled demand in the S&P 500. The broad stock index took a step back after a five-day rally, but its outlook remains bullish. JP Morgan sees it rising to 7’500, while RBC Capital Markets forecasts growth to 7’750 by the end of 2026, driven by the strength of the US economy, corporate earnings, artificial intelligence, and further easing of the Fed’s monetary policy.

At the end of the year, seasonal factors could play in favour of the S&P 500. According to CFRA research, since 1990, the market has most often grown in December, while average returns have been second, and volatility has been the second lowest. After Thanksgiving, it tends to grow. That’s the good news. The bad news is that the scale of this growth is decelerating over time.

When the market is preparing for the Christmas rally and expecting a cut in the federal funds rate, it is difficult to stop the bulls. According to Bank of America, the Fed is expected to ease monetary policy once in 2025 and twice more in 2026. This forecast is based on changes in the composition of the FOMC, rather than the state of the US economy. Until now, the health of the economy has been supportive of the S&P 500. The state of the economy allows for lower rates, but does not yet raise fears of a recession.

Tariffs are putting pressure on GDP, as evidenced by the ninth consecutive month of decline in manufacturing activity. However, investments in artificial intelligence are helping to keep the economy afloat and supporting the S&P 500.

Concerns about an AI bubble led to a pullback in stocks in November. However, as soon as fears subsided, they made a sharp recovery, further supported by news from the technology sector. For example, news of NVIDIA’s $2 billion investment in chip development boosted the shares of software manufacturer Synopsys.

Eurozone headline inflation ticked up slightly in November, rising to 2.2% yoy from 2.1% and coming in just above expectations of 2.1%. Core CPI (ex energy, food, alcohol & tobacco) held unchanged at 2.4%, matching forecasts.

Looking at the details, services were the main driver of inflation, climbing to 3.5% from 3.4%. Food, alcohol and tobacco inflation stayed steady at 2.5%. Non-energy industrial goods were unchanged at 0.6%, and energy inflation remained negative at –0.5% but improved from –0.9%.

Labor-market data painted a slightly softer picture. Eurozone unemployment rose to 6.4% in October from 6.3%, missing expectations of 6.3%.

Full Eurozone CPI flash and unemployment release.