December 7, 2023

“The Euro declined to its lowest level in over three weeks, down 0.07% this morning as traders intensified bets that the ECB might begin rate cuts from March 2024. Meanwhile, the dollar remained stable in anticipation of key payroll data later in the week.”

Tim Hallinan – Trading Director

Main Headlines

Companies on both sides of the Atlantic are racing to issue debt, capitalising on the most affordable borrowing costs in months following the robust rebound of the global bond market. In November alone, corporate bonds in the US and Europe saw a substantial surge, with $246 billion issued in investment-grade and junk bonds. This marked a 57% increase from October and $16 billion more than the average for the first 10 months of the year. The trend continued into the current week, as highly rated borrowers such as General Motors Financial, phosphate producer Mosaic, and telecom tower owner Crown Castle announced new deals.

British house prices exhibited a second consecutive monthly increase in November, according to data from major mortgage lender Halifax. This suggests a potential bottoming out of the year-long decline in house prices. On a seasonally adjusted basis, house prices rose by 0.5% in November, following a 1.2% increase in October that interrupted six months of continuous declines. Although the average house price of £283,615 ($356,447) was 1.0% lower than a year earlier, it marked a 1.7% increase from the trough observed in September.

GBP

Sterling is well bid against most major currencies this morning. Despite a fall in job postings by employers and broader economic weaknesses in 2023, the UK labour market remains tight, as revealed by figures from the recruitment platform Indeed. Comparing December of the previous year to December 1 of the current year, job postings decreased from being 48% higher than pre-COVID levels to a 10% increase. Meanwhile, British Prime Minister Rishi Sunak faced a setback as his draft emergency legislation to facilitate the deportation of asylum seekers to Rwanda was met with the immediate resignation of his immigration minister.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. German industrial production unexpectedly declined in October compared to the previous month, marking the fifth consecutive monthly decrease, according to the federal statistics office. International investors are cautiously entering Turkey’s long-overlooked debt market due to sweeping economic reforms and a rise in yields, resulting in increased appeal for the country’s bonds. Foreign fund managers have purchased about $700 million in lira-denominated Turkish government bonds in the second half of the year, representing the most significant inflow for any half-year period since the beginning of 2021.

USD

The dollar is weaker than most major currencies in the early morning trade. Investment banks and asset managers have wildly varying stock market and currency calls for 2024, reflecting deep division over whether the US economy will enter a long-heralded recession and drag the world with it. The lack of consensus among forecasters is a stark contrast to a year ago, when most predicted a US recession and rapid rate cuts that failed to materialise. The world’s largest economy expanded by 5.2% in the third quarter of this year. US bank supervisors are increasing scrutiny of lenders’ risk management practices and taking disciplinary action as they try to fix problems that could lead to more bank failures, banking industry sources said.

Markets

Stocks fell and bond yields rose amid speculation that the Bank of Japan will soon scrap the world’s last negative interest-rate regime. The yen strengthened 1% against the dollar and Japan’s 10-year yield jumped as much as 13 basis points. Investors are speculating that higher rates could come earlier than expected following comments from BOJ Governor Kazuo Ueda on more challenging policy ahead and a weak auction of long-term debt.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Germany Oct. Industrial Production
8:45 a.m.: ECB’s Holzmann speaks
8:45 a.m.: France Oct. Trade Balance
9:00 a.m.: Swiss Nov. Foreign Currency Reserves
10:00 a.m.: Italy Oct. Industrial Production
10:30 a.m.: Spain sells bonds
10:50 a.m.: France sells bonds
11:00 a.m.: Euro-area 3Q GDP, Employment
2:30 p.m.: US Initial Jobless Claims
4:00 p.m.: US Oct. F Wholesale inventories
4:00 p.m.: ECB’s Elderson speaks
EU’s Von der Leyen and Michel in Beijing for summit

Corporate Events

Earnings include Broadcom, DocuSign, Dollar General, Ciena, Lululemon, DS Smith, Frasers, Watches of Switzerland

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