November 30, 2023

“Crucial inflation data from the euro area and the US set the stage for a flurry of activity in the currency markets today. The US core PCE index in particular may present a challenge the dominant narrative of a softening US economy and strong 2024 rate cuts.”

Sam Cornford – Head of Trading

Main Headlines

China’s manufacturing activity contracted for a second consecutive month in November, and at an accelerated pace, indicating the need for more stimulus to support economic growth and instil confidence in the government’s ability to back the industry effectively. Despite economists revising their forecasts for China’s economy upward, following better-than-expected third-quarter data and the implementation of policy support measures, negative sentiment among factory managers appears to persist due to weak demand both domestically and internationally.

Metro Bank in the UK has unveiled extensive cost-cutting measures in an effort to strengthen its finances. The struggling British lender may lay off 20% of its staff and eliminate some major customer perks, including seven-day opening hours. As part of its refinancing and recapitalisation plan, which recently received shareholder approval, Metro Bank anticipates the cost reduction plan to yield up to £50 million ($63.45 million) in annual savings, with completion expected in the first quarter of 2024.

GBP

Sterling is trading steady against the dollar and up on the euro this morning as foreign inflation data takes centre stage. Mortgage approvals were higher than expected in October, according to data released yesterday, signalling a recovery in the market on the back of loosening financial conditions amid falling sovereign bond yields and interest rate expectations. Net consumer lending also grew £1.2bn compared to £0.4bn the month before. A speech by BoE policymaker Greene this afternoon is the sole market event today for sterling – eurozone CPI and US PCE will be the primary drivers of price action today, with significant volatility expected.

EUR

The euro has plunged 0.8% from its peak yesterday morning on softer-than-expected inflation data that has bolstered bets for significant rate cuts in 2024. Following in the footsteps of German and Spanish data yesterday, French CPI contracted to 3.4% from 4.0%, triggering a steep slide in EUR/USD when it printed this morning. GDP year-on-year also disappointed on expectations but grew modestly at 0.6%. The consolidated euro area headline inflation figure is forecast to decline from 2.9% to 2.7% later this morning, whilst the core print (excluding food and energy) should fall at a similar pace from 4.2% to 3.9%. ECB President Lagarde also speaks this afternoon – ECB speakers have generally been far more hawkish than their US equivalents recently.

USD

The dollar has recovered some ground this morning ahead of the crucial core PCE price index data this afternoon. The second estimate of Q3 GDP was revised up from 4.9% to 5.2% yesterday but was unable to spur a notable rally, given the well-entrenched dovish expectations priced into the currency markets. In fact, US Treasury yields are on track to decline the most in November for any month since 2008, and markets have now fully priced in a cut for May following softening data and a decisively dovish turn in Fed language. This stark move puts a lot at stake for the Fed-favoured core PCE inflation print this afternoon, for which markets are seemingly relying on to confirm their confidence on rate cuts, leaving dollar bears particularly vulnerable to a stickier-than-expected inflation figure. Meanwhile, unemployment claims are expected to rebound this week after a softened report last time around.

Markets

European stock futures indicated a positive start for the region as traders speculated that the Federal Reserve would cut interest rates next year. This expectation contributed to an 8% gain in November for a gauge of Asian equities, reversing three consecutive months of losses. Europe’s Euro Stoxx 600 futures increased by 0.5%, positioning the index for its best month since January. U.S. stock futures also edged higher.

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

8:45 a.m.: France Nov. CPI; 3Q GDP
9:00 a.m.: Riksbank’s Bunge speaks
9:55 a.m.: Germany Nov. Unemployment Change
10:00 a.m.: Italy Oct. Unemployment
10:30 a.m.: ECB’s Panetta speaks
11:00 a.m.: Italy Nov. CPI
11:00 a.m.: Euro-area Nov. CPI; Oct. Unemployment
2:30 p.m.: ECB’s Lagarde speaks
2:30 p.m.: US Oct. Personal Income, PCE Deflator; Jobless Claims
3:00 p.m.: BOE Decision Maker Panel survey
4:00 p.m. US Oct. Pending Home Sales
5:00 p.m.: BOE’s Greene speaks
6:00 p.m.: ECB’s Nagel speaks
COP28 kicks off in Dubai

Corporate Events

Earnings include RBC, TD Bank, CIBC

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