November 29, 2023

“Federal Reserve policymakers have seemingly joined markets in their dovish cheer, welcoming cooling economic momentum and disinflation and driving the dollar down yet further early this week. Sterling and the euro continue to test and break through price levels not hit since the summer… the biggest obstacle to this trajectory remains the US PCE price index tomorrow.”

Tim Hallinan – Trading Director

 

Main Headlines

Talks to form a new Dutch government are set to begin almost a week after the surprising election victory of populist Geert Wilders. Ronald Plasterk, a former Labour party minister, was appointed as the ‘scout’ to explore viable coalitions. This comes after a turbulent week where outgoing Prime Minister Mark Rutte’s conservative VVD party ruled out joining a government led by Wilders, narrowing the options for the election winner. Although Wilders’ PVV was the clear winner in the November 22 election, securing only 24% of the vote means it needs support from more moderate parties to form a government.

A dispute over the ownership of the Parthenon Sculptures, also known as the Elgin Marbles, between Britain and Greece intensified on Tuesday. Prime Minister Rishi Sunak cancelled a planned meeting with his Greek counterpart Kyriakos Mitsotakis. Sunak’s office stated that both sides had previously agreed that the meeting should not be used as a public platform to revisit ‘long, long settled matters.’ A spokesperson for Sunak argued that there are consequences if assurances are given and not adhered to.

GBP

Hawkish pushback from the Bank of England’s Bailey, alongside intensified Federal Reserve rate cut bets, steered sterling to a fresh three-month high against the dollar last night. The BoE Governor said in an interview yesterday that the central bank is not yet in a position where they can begin to discuss rate cuts, and that this is not something that is happening at the current time. He is due to speak again this afternoon, but mortgage approvals and net lending data will come first this morning to give an insight into tightened credit conditions amid an historic rate hiking campaign.

EUR

The euro’s overnight rally beyond key psychological levels night has been dampened this morning by lower-than-expected Spanish CPI inflation. Price growth cooled in November to 3.2% versus a 3.6% uptick expectation, in further confirmation of the ECB’s progress in its inflation battle. CPI for each German region is released throughout the morning ahead of the consolidated national figure this afternoon, which is expected to soften from 3.8% to 3.5%, bolstering the case for rate cuts next year. The French and euro area prints will come tomorrow morning to round out the picture for the ECB ahead of its December decision.

USD

The dollar is set for an almost 4% drop this month after it stumbled again yesterday afternoon, amid dovish language from Federal Reserve speakers that led investors to hammer down on rate cut bets. Influential hawk Waller gave a speech titled ‘Something Appears to Be Giving’, in reference to his previous October speech in which he argued that strong economic growth and continued disinflation could not continue to co-exist – it is economic momentum that has finally caved, he surmised this time. The closely watched policymaker indicated that rate cuts were possible as soon as Q1 next year, given that he was increasingly confident that the current rate would bring inflation down to the 2% target. US Treasury yields immediately slid and rate cut bets were raised, with the 2-year yield hitting fresh three-month lows. The second estimate of Q3 GDP is expected to revise the 4.9% annualised rate to 5.0%, but this is unlikely to give the dollar what it needs for a recovery, and it remains the core PCE price index tomorrow that is the central focus for markets this week

Markets

US equity futures slightly increased, and European contracts remained flat, following a mixed session in Asia. Treasuries extended their November rally as expectations rose that the Federal Reserve has concluded its policy tightening and might initiate interest rate cuts next year, and global equities are on track for a 9% jump in November.

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

9:00 a.m.: Spain Nov. CPI, Oct. Retail Sales
9:00 a.m.: Sweden Nov. Economic Tendency Survey
9:05 a.m.: Riksbank’s Jansson speaks on monetary policy
10:00 a.m.: Italy Nov. Consumer Confidence, Manufacturing Confidence
10:30 a.m.: UK Oct. Mortgage Approvals, Money Supply
11:00 a.m.: Italy Oct. PPI
11:00 a.m.: Euro-area Nov. Consumer Confidence
2:00 p.m.: Germany Nov. CPI
2:30 p.m.: US 3Q S GDP, Oct. Wholesale Inventories
4:05 p.m.: BOE’s Bailey speaks
4:15 p.m.: BOE’s Hauser speaks
5:00 p.m.: Russia Oct. Factory Output
OECD releases biannual economic outlook including new economic forecasts
New York Times Dealbook Summit

Corporate Events

Earnings include Prosus, Naspers, Okta, Snowflake, Foot Locker, Dollar Tree, Salesforce

 

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