Newsquawk European Market Wrap - 25th November 2024

• A bulk of today's price action was dominated by news that Trump has picked Bessent as Treasury Secretary


• Israel and Lebanon agreed to the terms of an agreement to conclude the Israel-Hezbollah conflict, Axios


• European stocks kicked the week off on the front foot, yields were lower


• USD was softer vs. all majors with EUR the best performer, crude was lower

EQUITIES

• 
  European Equities kicked the week off on the front foot with price action partly a function of Scott Bessent's nomination as US Treasury Secretary, who may be more flexible in trade issues with China; Bessent is known for a more moderate stance on tariffs, and has advocated for a gradual approach to implementing levies. Elsewhere, markets shrugged off a mixed German IFO release. Other macro drivers included the Israel and Lebanon agreement.


• 
  European Sectors were mixed. Luxury names were boosted by exposure to China given a potentially more gradualist approach to tariffs by Bessent. Basic Resources were supported by underlying price action in the metals space with Anglo American (+1.1%) supported by news that it is to sell its coal mines within Australia to Peabody for up to USD 3.8bln. At the bottom of the pile, Retail names were weighed on by post-earnings losses in Kingfisher (-13%), whilst Energy stocks were hampered by downside in crude prices.


• The FTSE MIB is lagged peers with UniCredit (-4.2%) bottom of the index after offering to purchase Banco BPM (+4.8%) for EUR 10bln. In sympathy with this, Commerzbank (-5.9%) shares were lower. On the M&A front, ITV (+10%) shares are soaring after reportedly attracting takeover interest from suitors such as CVC Capital Partners and France's Groupe TF1, according to Sky News. Elsewhere in the UK, JD Sports (+8%) is top of the FTSE 100 following an upgrade at Deutsche Bank, with the FTSE 100 more broadly propped up by strength in Basic Resources. Thyssenkrupp Steel announced it is to lower headcount by 5k by 2030; additional 6k jobs are to be transferred to external service providers or sale of business activities


• 
  US equities (S&P 500 +0.6%, NQ +0.4%, RTY +1.4%) opened in the green with outperformance in the Russell 2k as the positive implications of Trump's Treasury pick saw a pivot towards more cyclically-exposed stocks; note, benchmarks pulled back markedly as the US cash session progressed, though remain in the green. Tesla (-0.4%) introduced a limited-time RMB 10,000 discount for two Model Y variants in China. Intel (+2%) were boosted after reports noted the Co. is close to finalising a USD 8bln grant from the US government. Macy's (-4%) have been hit by their Q3 prelim. update which identified an issue relating to delivery expenses in one of its accrual accounts.

FX

• 
  USD - Pressured, DXY slipped beneath the 107.00 level in reaction to the nomination of billionaire hedge-fund manager Scott Bessent for Treasury Secretary who is seen as a fiscal hawk and has advocated for tax reform and deregulation. This week sees several key announcements for the US leading into the Thanksgiving holiday including US GDP, Core PCE and FOMC Minutes. As it stands, markets price around 14bps of easing for the December FOMC meeting. DXY had ventured as high as 108.07 on Friday as the EUR cratered in response to dismal PMI metrics. DXY has since slipped below the 107 mark with a session low @ 106.58.


• 
  EUR - Reversed Friday's heavy PMI-induced losses which saw the pair drop to its lowest level since 2022 @ 1.0332. The recent run of data for the Eurozone has prompted a dovish repricing for the ECB with a near coin-flip between a 25bps or 50bps cut for the December meeting. However, price action today has instead been dominated by the pullback in US yields. EUR/USD reclaimed the 1.05 handle, topping out at 1.0530. The next target for the pair comes via the 21st November peak @ 1.0555.


• 
  GBP - Firmer vs. the USD but softer vs. the EUR which tried to claw back some of Friday's heavy losses. GBP-specific events today saw commentary from BoE's Lombardelli who has reiterated the MPC consensus that policy restriction will need to be unwound in a gradual manner. Dhingra took a characteristically dovish stance. Cable just about made its way back onto a 1.26 handle. If upside resumes, the 21st November peak sits @ 1.2660.


• 
  JPY - Garnered support overnight following a retreat in US yields and the Japanese Cabinet's stimulus package approval. In response to the package, analysts at ING note that it is "encouraging the view that the Bank of Japan will hike in December after all". As it stands, markets price in around 15bps of easing for the meeting. USD/JPY returned to a 153 handle (current session high @ 154.72), delving as low as 153.56 overnight. If downside extends, the 19th November low sits @ 153.28.


• 
  Antipodeans - Both firmer vs. the broadly softer USD alongside the encouraging risk environment. NZD chose to overlook NZ Trade Data and Retail Sales as participants await the RBNZ Rate Decision on Wednesday with the Shadow Board recommending a 50bps cut. NZD/USD went as high as 0.5869 overnight before returning back into Friday's 0.5816-60 range. AUD/USD has returned to a 0.65 handle with a session but is down from the overnight session peak @ 0.6549.

FIXED

• 
  A session of gains for benchmarks. Action tempered a touch in the European morning around/after the latest Ifo metrics, which had some glimmers of optimism for the future.


• However, the narrative has largely been one driven by US President-elect Trump selecting Scott Bessent as the next Treasury Secretary, an update which has sparked pronounced bull-flattening, weighing on the USD as well.


• Action which occurred on the narrative that he is a fiscal deficit hawk, which should equal less issuance. Also, he is regarded as being relatively tariff-moderate which should temper inflationary pressure and lead to looser monetary policy, all else equal.


• As it stands, benchmarks set to end the European section of the session at highs with gains of +23, +48 and +77 ticks for USTs, Bunds & Gilts respectively.


• This aside, the docket has also featured a handful of Central Bank speakers from the BoE and ECB, though nothing which has changed the narrative, substantially influenced bonds or market pricing thus far.


• Ahead, ECB’s Chief Economist Lane is scheduled before a US 2yr Note auction.

COMMODITIES

• 
  Crude has been under pressure throughout the session, downside was modest at first and a function of geopols, Bessent and Iranian remarks.


• However, benchmarks took a more pronounced leg lower on an Axios report that Israel and Lebanon have agreed to the terms of an agreement to conclude the Israel-Hezbollah conflict.


• An update which sent WTI Jan'25 lower from USD 70.75/bbl to USD 69.48/bbl over the course of 15-minutes and Brent Jan'25 fell from USD 74.75/bbl to USD 73.52/bbl; benchmarks are set to end the European session well into the red but some USD 0.70/bbl off the above lows.


• 
  Gas has been inflated throughout the day, taking impetus from the constructive risk tone and specific updates out of Iraq regarding Iranian maintenance and on flows from Slovenia to the Czech Republic being down 5% W/W.


• A session of pressure for spot gold, downside which came initially as markets welcomed the Bessent nomination that saw the yellow metal go below USD 2.7k/oz overnight. While it stabilised a touch after, it has more recently come under pressure on the above Axios update, a development that has sent the yellow metal to a USD 2636/oz trough.


• 
  Base metals benefitted from the constructive risk tone, action was initially tempered by the tentative/range-bound performance of China in APAC trade. Since, as the tone becomes increasingly constructive, base metals have made further gains with 3M LME Copper at a USD 9.1k high, rebounding well from last week’s USD 8.95k trough.


• Nominations for gas flows from Slovenia into Czech Republic on Monday -5% W/W, according to EuroStream data


• Iraq said a 15-day halt in Iranian gas due to maintenance is cutting 5.5GW from the national grid.


• 
  Iran's Oil Minister says Iran will strive not to accept limits on oil production quota.


• Kazakhstan Energy Minister says "due to expectations of a shortage of light oil products in 2036, it will be necessary to start designing a new oil refinery with capacity of 10 million tonnes per year no later than in 2030".


• 
  US President Elect Trump to confront IEA over focus on green energy; plans to lift pause on new LNG export permits and move swiftly to approve pending permits. Plans to seek money from congress to replenish strategic petroleum reserve.


• 
  OPEC+ to hold its 1st December oil policy meeting online, according to Reuters citing sources.

EUROPEAN NEWS

• French Budget Minister says the aim for next year's budget deficit is to come as close as possible to 5%; "aiming for savings of EUR 60bln in the budget next year, may be a little below".


• National Rally's Le Pen repeats her red lines to French PM Barnier, says "nothing has changed so far". With the budget bill in it's current form, "we would not support Barnier".


• Germany's SPD nominates Scholz as their candidate for chancellor in elections, via NTV.

EUROPEAN DATA

• German Ifo Business Climate New (Nov) 85.7 vs. Exp. 86.0 (Prev. 86.5); Current Conditions New (Nov) 84.3 vs. Exp. 85.4 (Prev. 85.7); Expectations New (Nov) 87.2 vs. Exp. 87.0 (Prev. 87.3)

CENTRAL BANKS

• 
  ECB's Lane says monetary policy should not remain restrictive for too long, via Les Echos; rapid rises in rates have further slowed the housing sector and investment. Also, encouraged saving over consumption. A large part of getting inflation back to 2% will be completed next year. Restrictive policy is probably no longer needed in 2025.


• 
  BoE's Lombardelli says the economy has made good progress on disinflation. There are some signs that the wage disinflation may be slowing. Views the probabilities of downside and upside risks to inflation as broadly balanced. Too early to declare victory on inflation. PMIs may suggest some slowing in the UK but "I don't take a strong signal from one event".


• 
  BoE's Dhingra says recent CPI outturns show no asymmetry in inflation unwinding. Fall in services PPI appears to be slowing but probably due to erratic components. UK no longer looks like an outlier for inflation among advanced economies

GEOPOLITICS

• Kremlin says Russian President Putin has repeatedly said he is ready for dialogue over Ukraine.


• 
  Russia's Deputy Foreign Minister says they are considering deploying medium- and shorter-range missiles in Asia in case US missiles are deployed to the region, via Ria.


• 
  China's vice Commerce Minister says they are willing to strengthen cooperation with the US. Welcomes NVIDIA (NVDA) to continue its presence in China.


• 
  Israel PM Netanyahu reportedly approves an emerging ceasefire deal with Hezbollah "in principle", according to CNN citing sources.


• 
  Israel and Lebanon have agreed to the terms of an agreement to conclude the Israel-Hezbollah conflict, according to Axios citing a US official.


• 
  Israel's Security Cabinet is expected to approve the agreement with Lebanon on Tuesday, via Sky News Arabia citing Israeli sources

25 Nov 2024 - 15:00- ForexEU Research- Source: Newsquawk