December 03, 2024

“Yesterday saw the biggest FX swings since the US election in November, driven largely by the looming collapse of the fragile French government. A no confidence vote is the next step later, and the focus today is on the US JOLTS report.”

Sam Cornford – Head of Trading

USD

The dollar had its strongest day since the election yesterday, rising more than 0.5% against most of its peers as a political meltdown in France and some stronger-than-expected manufacturing data helped to widen its rate advantage. That is despite pricing for a December cut rising to more than 70% after the Fed’s Waller suggested that he was leaning towards voting for one in two weeks’ time, arguing that policy is still weighing on inflation (read the full speech here). He also said that this would depend on the data, and yesterday’s ISM manufacturing PMI remained relatively weak but rose from 46.5 to 48.4, to realign with the stronger signals in the S&P PMIs. Today, the key data point is the JOLTS report, which holds some key indicators of balance in the labour market, including the number of vacancies and the quits rate. The consensus is for a modest rise in job openings from 7.4M to 7.5M. There are also several Fed speeches later this afternoon from Daly, Kugler, and Goolsbee.

GBP

Sterling appeared to be dragged lower by political turmoil on the continent yesterday and slipped 0.6% against the dollar, but it has recovered nearly half of its losses so far this morning. Some BRC retail sales data this morning expressed a familiar tone on the impact of the budget on consumer sentiment, with spending falling 3.4% on the year, although that has not had a strong effect on the pound this morning. That is all that is in the diary today, so markets will turn to tomorrow’s speech from Bailey and the final PMI figure for further domestic clues.

EUR

Crashing political sentiment in France handed the euro a dire start to December, slumping three-quarters of a percent in its biggest daily loss since Trump’s re-election. With Barnier’s government unable to reach a compromise with the far right, he has now attempted to force through a budget without a parliamentary vote. Unsurprisingly, the government now faces a vote of no confidence that it is likely to lose, leaving deficit reduction efforts in limbo. It is interesting to note that the French political crisis only appears to be affecting the euro so far as it impacts ECB rate pricing, with markets tacking on rate cut bets based on the assumption that governmental collapses in the eurozone’s two biggest economies increase the urgency to bring rates down.

Elsewhere in Europe, Swiss inflation accelerated to 0.7% year-on-year in November as expected, but a fifth consecutive monthly decline in prices is likely to make the SNB nervous about the deflationary risks. A 50bp rate cut is priced at a 50/50 for next week.

Markets

Equities closed mostly in the green yesterday. In the US, both the Nasdaq and the S&P 500 hit fresh record highs with 0.3% and 1.1% moves respectively. Perhaps surprisingly in Europe given the French political drama, the Eurostoxx 50 climbed 0.9% and the UK’s FTSE 100 moved up to close at a six-week high.

Main Economic Events (All Times CET)

7:30am: Swiss CPI
4:00pm: US JOLTS Job Openings

To learn more about Ballinger Group, please visit our website or our LinkedIn page.