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Markets

Friday’s fresh sell-off in the UK gilt market served as a chill reminder that deteriorating public finances are here to stay as a market theme. Not only in the UK, but globally. The UK yield curve bear steepened with yields rising by 8.2 bps (2-yr) to 16.4 bps (30-yr). Sterling eventually managed to erase intraday losses, closing almost unchanged at EUR/GBP 0.8822 after briefly moving above 0.8850 for the first time since April 2023. The government’s U-turn on raising income taxes in next year’s Budget (Nov 26 release) set things in motion. The positive connotation to not having to raise taxes again and break the election manifesto (after gently preparing for that hard message for over a month) paled compared with the feeling that Labour lost control over the fiscal narrative. The lack of visibility for UK households and firms and the lack of vision from the ruling party increases uncertainty and questions the ability to get finances back on track. Markets whipsawed after Bloomberg reported that more favorable projections by the Office for Budget Responsibility triggered the government’s change of heart but that intraday rebound didn’t last for long. The OBR estimates the budget gap to be £20bn rather than the long-feared £35bn (without restoring existing fiscal buffers). Chancellor Reeves later said that she won’t lower the thresholds at which people pay the basic and higher rate of the income tax but rathe extend the freeze at current levels. Markets considered this as kicking the can down the road and now expect a mixed bag of small, non-structural, measures to plug the budget hole. The political episode highlights the fragility of the Starmer-Reeves leadership with internal revolt building.

European and US markets followed the bear steepening signal. EUR swap rates ended 1 bp (2-yr) to 3.1 bps (30-yr) higher. From a technical point of view, the 2-yr swap rate closed at its highest level since the end of March (2.19%) with money markets no longer erring on the side of an additional ECB rate cut. The 10-yr swap rate (2.75%) had only one higher close since July 2024. The 30-yr swap rate (3.04%) extended its push beyond 3% to reach the highest level since November 2023. The US yield curve closed 1.6 bps (2-yr) to 3.6 bps (30-yr) higher. The risk correction came to a halt on Friday as bottom fishers showed up, helping main US equities to close unchanged (S&P 500) to slightly higher (Nasdaq) after incurring opening losses of almost 2%. EUR/USD is still going nowhere just north of 1.16. Today’s economic calendar only contains the US Empire Manufacturing Survey and EC forecasts. We don’t expect them to set the tone for global trading. We keep a close eye at interest rate markets to see if last week’s bear steepening moves get more traction.

News & Views

The central bank of Spain is projecting a budget deficit of 2.3% for 2026, down from 2.5% this year. That would mean a lower shortfall than Germany’s expected 3.1% for the first time in almost 20 years in what is another sign of how intra-EMU fiscal fortunes have significantly changed over the last couple of years. The (semi-)core struggles to rein in outsized deficits (eg. France, Belgium) or simply opens the taps (eg. Germany) while the periphery is taking a grip on public finances. For Spain in particular its fast-growing economy has been a boon. GDP since 2022 expanded at an average clip of +/- 4% y/y compared to less than 0.5% for Germany. It allowed the government to pencil in a primary surplus for this year, its first since 2007.

Japanese GDP contracted in Q3 of this year, but less than feared. The economy shrank by 0.4% Q/Q or 1.8% in yearly terms, compared to the -0.6% and -2.4% expected. The Q2 print in addition saw a slight upward revision to 0.6% and 2.3% respectively. The GDP decline came on the back of a sharp drop in residential investment, fixed capital formation and net exports which anemic private (accounting for around half of the economy) and government consumption was unable to offset. The Japanese yen barely budged on the release with USD/JPY treading water around 154.7. Yields, however, do rise, especially at the long end of the curve. This may be inspired by growing expectations for the promised big fiscal package by PM Takaichi to support the economy, to be announced over the summer. Japan’s 20-yr yield – in focus due to the upcoming auction on Wednesday – rises to a new multidecade high of 2.75%.

BoJ Governor Kazuo Ueda warned that maintaining ultra-loose monetary policy for an extended period could introduce risks to achieving inflation target in a stable manner. Minutes from his meeting with the Council on Economic and Fiscal Policy recorded Ueda stressing that stable achievement of the 2% goal required both pushing inflation up and preventing an unintended overshoot.

He noted that “keeping policy too loose for too long carries risks,” framing the central bank’s current approach as one aimed at ensuring a "smooth landing" while carefully assessing economic conditions.

The meeting also marked the first public appearance of Ueda alongside Prime Minister Sanae Takaichi since she took office.

The Swiss are known to be slow. It took the Palais Fédéral a few months to acclimate to the new diplomacy and send – instead of Karin Keller-Suter, who could sometimes be irritating but would never kiss the ring – a handful of rich businessmen with arms full of gifts, ranging from Rolex watches to gold bars specifically curved for President Trump. And the magic worked. The Swiss export tariff was pulled from 39% to 15%.

Anything that’s for sale, the Swiss could buy. But make no mistake: at Friday’s apéro, the good news from the US tariffs was counterbalanced by the franc’s persistent strength. The strong franc sure sounds like a First World Problem – and it is – but it has concrete implications for businesses. While iPhones, toys, cars, and whatever else you can think of made outside Switzerland will be cheap for the Swiss this Christmas, it’s also hurting demand and costing jobs in Switzerland. Your Gruyère cheese could be the best in the world, but when it costs nearly $40 a kilo, it’s hard to digest.

This is why the SMI didn’t know how to react on Friday. It gapped lower at the open, then zigzagged up and down, but nothing suggested the clouds had cleared.

So what’s next? Can the Swiss franc appreciate indefinitely? The answer seems to be yes. The Swiss National Bank (SNB) cut rates to 0% this year, and the latest data suggest it has tried to intervene in FX markets by directly selling francs to weaken it. Nothing worked. From here, direct FX intervention seems more likely than another rate cut this year. There’s no guarantee the latter would reverse the franc’s appreciation. But in theory, the SNB can print as many francs as it wants and sell them. And the EURCHF is currently hovering around 0.92 – levels that usually bring the SNB into play.

And why is the franc so strong? Appetite for other currencies is weak. Even gold doesn’t offer much peace of mind in times of market turbulence. The US dollar is better bid this morning, as the US finally provides data for hungry investors to chew on. The probability of a 25bp Federal Reserve (Fed) cut in December has dropped to 43%, down from above 90% after the US government shutdown. And there’s now room for the doves to jump back on the wagon – but for that, Thursday’s jobs data should be soft enough to reverse the “no-cut” pricing. What counts as “soft enough”? Hard to say, as there are no forecasts yet for September. My analysis: we’ll see.

Last week ended slightly positive as dip-buyers jumped in before the closing bell, helping the S&P500 close above its 50-DMA. Nasdaq futures are leading gains this morning on hope that Nvidia will throw another set of strong results on the table this Wednesday, scaring the bears away. Jensen Huang sounds so confident the numbers won’t disappoint. But will investors keep buying? Possibly. Berkshire Hathaway reportedly built a new stake in Google, while Michael Burry closed his short positions and shuttered his fund. There may be more air to pump in.

Would improved appetite save Bitcoin? I don’t know. I rarely comment on Bitcoin – it rarely moves on anything tangible, and it annoys me. What’s clear is that momentum remains Bitcoin’s bigger trend – pointing at deeper losses. How deep? My Fibonacci retracement on the 2023–2025 rally suggests it could sink to around $82–83K without breaking the past two years’ bullish trend.

My guess is that, whatever happens to Bitcoin, the blockchain will thrive. If you missed the memo, JPMorgan has rolled out its own deposit token, JPM Coin, which – unlike Bitcoin, backed by thin air – represents US dollar deposits safely held at JPMorgan. Why is this cool? Because these tokens slash settlement times, boost liquidity, and let clients operate 24/7. Real-time, round-the-clock money movement… unlike the current system that shuts down on weekends like it’s 1998.

This is another giant domino falling toward the institutionalization of tokenized money. In ten years, it might not be Bitcoin that replaces money, but tokens quietly rewiring the entire financial system. And honestly? We’ll only be happy. One day, we’ll look back and say: “Remember when payments took two days and the system went to sleep on weekends? How absurd.”

In focus today

There is no exciting news releases scheduled for today, but this marks the start of a week packed with significant macroeconomic events.

Midweek brings key releases, including the UK October CPI and the FOMC minutes on Wednesday. On Thursday, attention will shift to euro area November consumer confidence. To round off the week, Friday will deliver euro area and US November flash PMIs alongside the ECB's Q3 negotiated wages data.

The focus this week will not least also turn to the delayed release of US data following the end to the US government shutdown last week. Also, central bank signals, growth indicators and on Wednesday the Nvidia earnings release will be important.

Economic and market news

What happened overnight

In Japan, Q3 GDP contracted by 0.4% q/q, beating consensus of a 0.6% decline. This translates to an annualised contraction of 1.8% y/y for the quarter, primarily attributed to a sharp drop in exports amid US tariffs having an impact. Automakers experienced a significant plunge in shipment volumes, reversing earlier gains from front-loaded exports. Additionally, housing investments weighed on growth. Despite these challenges, the economy remains on a relatively stable footing. Sustained wage growth will be crucial for the Bank of Japan to consider further interest rate hikes.

What happened Friday

In euro area, GDP grew by 0.2% q/q in Q3, slightly improving on the 0.1% growth recorded in Q2 and broadly in line with expectations. The data reaffirms a picture of sub-trend yet resilient activity. However, growth remains uneven across the region. France and Spain continue to drive momentum, with Spain's strong performance standing out, while Germany lags, stagnating for the third consecutive year due to weak industrial output, subdued exports, and sluggish private consumption.

Employment in the euro area rose by 0.1% q/q in Q3, a marginal improvement compared to the previous quarter. The labour market remains relatively resilient, although signs of cooling are evident as firms retain staff despite weak demand. This modest increase highlights a subdued employment environment, which aligns with a cautious outlook on wage pressures and broader corporate activity.

In Sweden, the October Labour Force Survey revealed a rise in unemployment to 9.3%, though its volatility and a weaker sample group warrant caution in interpretation. Despite this, the outlook appears more optimistic, with signs of a swifter-than-expected recovery. However, the Riksbank's shift from focusing on high unemployment to addressing inflation risks may be delayed. Encouragingly, early indicators suggest a strengthening labour market, and the Public Employment Service's more stable measure showed unemployment declining to 6.8% in October.

In the UK, Gilts and GBP sold off as Chancellor Reeves ditched plans to raise income tax rates. The decision came as the OBR forecast for the UK economy looks to leave a smaller fiscal gap to close than expected. These forecasts are notoriously uncertain, and this backdrop did little to sooth investors. The final budget will be presented on 26 November.

A trade agreement between the US and Switzerland was finalised on Friday, reducing tariffs on Swiss goods to 15%, down from 39%, and including a Swiss commitment to invest USD 200bn in the US. The deal places Switzerland on equal footing with the EU.

In the cryptocurrency market, Bitcoin hit new lows around USD 93,000 over the weekend before rebounding somewhat overnight to USD 95,000. The cryptocurrency has been on a four-day losing streak, declining 9% week-to-date amidst a broader stock market retreat driven by concerns surrounding AI.

Equities: Global equities ended Friday 0.3% lower, leaving the week only marginally higher overall. The best-performing sectors were energy and tech on what was otherwise a day with limited macro news. In the US on Friday: Dow -0.6%, S&P 500 flat, NASDAQ 0.1% higher and Russell 2000 +0.2%.

FI and FX: Friday saw some substantial intraday moves across asset classes. UST yields and equities were deep in the red halfway through the session whilst EUR/USD rallied to 1.1650. However, without any apparent trigger these moves were quickly reversed the S&P500 closed flat, up a couple of bp throughout the UST curve and close to 1.16 for EUR/USD. Defying the intraday reversal, scandi weakness was constant throughout the day, with EUR/SEK climbing closer to the 11-mark and EUR/NOK back above 11.70 once again. For this week, attention turns to the release of the delayed US data, the FOMC minutes and Friday's flash PMIs.

Daily Pivots: (S1) 202.57; (P) 203.33; (R1) 204.32; More...

Intraday bias in GBP/JPY stays neutral for the moment. On the upside, firm break of 204.22 will suggest that larger rally from 184.53 is ready to resume through 205.03. However, break of 202.31 minor support will turn bias to the downside towards 199.04, to extend the corrective pattern from 205.30 with another falling leg.

In the bigger picture, price actions from 208.09 (2024 high) are seen as a corrective pattern which might have completed at 184.35. Firm break of 208.09 high will resume the up trend from 123.94 (2020 low). Next target is 61.8% projection of 148.93 to 208.09 from 184.35 at 220.90. However, decisive break of 197.47 support will dampen this view and extend the corrective pattern with another fall.

Daily Pivots: (S1) 179.05; (P) 179.52; (R1) 180.06; More...

Intraday bias in EUR/JPY remains neutral for consolidations below 179.95 temporary top. Downside of retreat should be contained well above 175.67 support. On the upside, break of 179.95 will target 100% projection of 161.06 to 173.87 from 171.09 at 183.90 next.

In the bigger picture, up trend from 114.42 (2020 low) is in progress and should target 61.8% projection of 124.37 to 175.41 from 154.77 at 186.31. Outlook will continue to stay bullish as long as 55 W EMA (now at 169.00) holds, even in case of deep pullback.

Daily Pivots: (S1) 0.8802; (P) 0.8834; (R1) 0.8854; More…

Intraday bias in EUR/GB remains neutral at this point. Considering bearish divergence condition in 4H MACD, firm break of 0.8765 support will confirm short term topping. Deeper fall should then be seen back to 55 D EMA (now at 0.8729) even still as a correction. On the upside, however, sustained trading above 0.8867 fibonacci level will carry larger bullish implications. Next near term target will be 100% projection of 0.8354 to 0.8752 from 0.8631 at 0.9029.

In the bigger picture, rise from 0.8221 medium term bottom is still seen as a corrective move. Upside should be limited by 61.8% retracement of 0.9267 to 0.8221 at 0.8867. Sustained trading below 55 W EMA (now at 0.8589) should confirm that this corrective bounce has completed. However, decisive break of 0.8867 will suggest that EUR/GBP is already reversing whole decline from 0.9267 (2022 high). That should pave the way back to 0.9267.

Daily Pivots: (S1) 1.7717; (P) 1.7794; (R1) 1.7856; More...

Range trading continues in EUR/AUD and intraday bias remains neutral. .Outlook is mixed. On the downside, break of 1.7561 support will revive the bearish case that corrective pattern from 1.8554 is in the third leg, and target 1.7245 support. On the upside, though, above 1.7895 will resume the rebound from 1.7561 to 1.8160 resistance.

In the bigger picture, price actions from 1.8554 medium term top are seen as a corrective pattern. Sustained break of 55 W EMA (now at 1.7426) will suggest that it's correcting the whole rally from 1.4281 (2022 low). In this case, deeper decline would be seen to 38.2% retracement of 1.4281 to 1.8554 at 1.6922. Nevertheless, strong rebound from 55 W EMA will likely bring resumption of the up trend sooner.

Daily Pivots: (S1) 0.9196; (P) 0.9213; (R1) 0.9247; More....

Intraday bias in EUR/CHF remains neutral and some consolidations could be seen above 0.9178 temporary low. . Recovery should be limited below 0.9325 resistance to bring another fall. Firm break of 0.9178 will extend the larger down trend and target 100% projection of 0.9452 to 0.9208 from 0.9325 at 0.9082.

In the bigger picture, outlook remains bearish with EUR/CHF staying well inside long term falling channel after multiple rejection by 55 W EMA (now at 0.9377). Next target is 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. Break of 0.9452 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of strong rebound.

Daily Pivots: (S1) 1.1601; (P) 1.1628; (R1) 1.1649; More…

Intraday bias in EUR/USD stays neutral first. Current development suggests that fall from 1.1917 might have completed as a three wave correction at 1.1467. Above 1.1655 will target 1.1727 resistance first. Firm break there will solidify this bullish case and bring retest of 1.1917 high. However, break of 1.1561 will revive near term bearishness and target 1.1467 low instead.

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 1.1328) 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.