November 24, 2023

“The UK PMIs gave some festive cheer to sterling investors yesterday with a surprising return to economic expansion in the private sector, sending the pound surging against its major peers. The eurozone figure improved but remained glum, whilst the US PMIs later today are set to be a key test of the current optimistic narratives steering financial markets”.

Sam Cornford – Head of Trading

Main Headlines

Far-right populist Geert Wilders, aiming to become the Netherlands’ next prime minister, emphasised yesterday his focus on curbing immigration following a landmark election win. His victory serves as a warning to mainstream parties across Europe, particularly ahead of the European Parliament elections next June, which will likely be fought on the same issues as the Dutch election: immigration, the cost of living, and climate change. Wilders’ Freedom Party (PVV) secured 37 seats out of 150, surpassing expectations and outpacing the joint Labour/Green ticket with 25 seats and the conservative People’s Party for Freedom and Democracy (VVD) of outgoing Prime Minister Mark Rutte with 24 seats. Coalition talks are anticipated to extend over several months.

As Black Friday marks the beginning of the holiday shopping season, retailers and manufacturers expect a rising number of British consumers to seek refurbished and pre-owned bargains, aiming to save money and shop more sustainably. Persistent inflation and high mortgage rates are impacting shoppers’ spending capacity, prompting an increased interest in used items. E-commerce firm eBay Inc and British charity Oxfam anticipate growing sales of second-hand goods, ranging from vacuum cleaners to clothes.

GBP

Sterling has steadied around a 2-1/2-month high after an unexpected return to growth in November propelled the pound yesterday. The services PMI index ticked above the key 50 threshold denoting expansion with a 50.5 print, which is higher than economist expectations for the US later today in a vast turnaround for relative economic growth prospects. According to the report, the services sector was buoyed by a pause in monetary tightening and improving business conditions, although it notes that the economic environment remains challenging and inflation remains sticky. In further good news this morning, British consumer confidence rebounded this month at the fastest rate since April, driven by encouraging news about falling inflation and real wage increases.

EUR

Eurozone economic growth worries appear to have bottomed out, lending the euro some support yesterday. The PMIs painted a still glum picture and remained in contractionary territory, but improved on the previous month, with the composite figure standing at 47.1 compared to October’s 46.5. Economic pessimism is likely to have peaked for now, but a single data point doesn’t make a trend and the eurozone figures are now lagging behind the UK significantly. In the ECB meeting minutes released yesterday, policymakers appeared cautiously optimistic as they said that disinflation is falling perhaps faster than they even expected, giving further credence to market pricing of rate cuts in the spring/summer. On today’s calendar we have German and Belgian business climate surveys and a speech by ECB President Lagarde.

USD

Thin Thanksgiving volumes have the dollar trading steady towards the end of this week, but the delayed PMIs this afternoon should give further clarity on the softening economic outlook that has battered the dollar this month. US private sector activity is expected to weaken slightly but to remain in expansionary territory when the purchasing manager survey index print this afternoon. The Black Friday holiday shopping season also begins today and is set to test the US consumer’s appetite for spending amid high borrowing costs and dwindling savings.

Markets

World equity markets continue to climb in their best month since late 2020 when vaccine breakthroughs sent stocks soaring. The S&P 500 is up over 8% in November alone as it nears a fresh 2023 high, driven by an immense boost to risk sentiment from softening but robust US economic data, that has seen markets price out further hikes to borrowing costs but remain confident about a soft landing. Wall St equities are steady this morning, however, given thin Thanksgiving trading.

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

8:00 a.m.: Germany 3Q GDP
10:00 a.m.: Germany Nov. IFO Business Climate
11:00 a.m.: ECB’s Lagarde speaks
12:00 p.m.: Riksbank’s Floden speaks
12:00 p.m.: UK sells bills
2:00 p.m.: ECB’s De Guindos at S’Agaro conference
3:45 p.m.: US S&P Global Manufacturing/Services PMI
4:00 p.m.: ECB’s De Cos at S’Agaro conference
Nigeria 3Q GDP
Black Friday kicks off holiday shopping season

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