Newsquawk European Market Wrap - 29th November 2024

• EU headline inflation ticks up Y/Y as expected


• Yen supported by hot Tokyo CPI


• S&P is scheduled to review France after the close

EQUITIES

• 
  European Equities: European bourses are mixed. From a macro perspective, focus has primarily fallen on Eurozone inflation metrics which saw an-line print for the headline at 2.3%, whilst the super-core was a touch softer at 2.7% vs. Exp. 2.8% and the service metric nudged lower to 3.9% from 4.0%. ECB pricing was little changed with odds of a 25bps move at the December meeting seen at around 84%.


• 
  Sectors are mostly lower with underperformance in Food Beverage and Tobacco while Autos and Parts continue to decline in what has been a bruising week for the sector (-1.7% WTD). Bucking the trend are Basic Resource names following strength in underlying metals prices and with Anglo American (+3.8%) amid speculation in the FT that BHP could come back with a fresh bid for the Co. Anglo was also upgraded at Jefferies. Technology and Financial Services also outperform.


• 
  Bourses are mixed with some marginal weakness in the periphery. Stock-specific updates have been on the light side aside from the Anglo American story mentioned above. Elsewhere, on the M&A front, the FT notes that Aviva (+0.3%) has contacted Direct Line (+4%) shareholders directly in a move to persuade the Direct Line board to come to the table. Delivery Hero (+1.5%) shares are a touch higher following news that the IPO price for Talabat Holding has come in at the top of the range. Elsewhere, German Chancellor Scholz urged Thyssenkrupp (-0.8%) to reconsider its planned job cuts in its steel division. Finally, the German government plans to invest around EUR 2bln in its semiconductor industry to strengthen Europe's chip supply chain, Bloomberg reports. US equity futures have rebounded from early pressure to trade slightly higher heading into a shortened US trading session. Given the Thanksgiving Holiday yesterday and the likelihood that most traders Stateside will take it as a long weekend, today's US macro narrative is likely to remain unaltered. The next key inflection point is likely to come via NFP next Friday. In terms of US stock stories to be aware of, the Biden administration plans to tighten restrictions on semiconductor and AI memory chip sales to China, targeting Beijing’s tech ambitions, Bloomberg reports. The US FTC has launched a detailed antitrust investigation into Microsoft (-0.9%), focusing on its cloud computing, software licensing, cybersecurity, and AI businesses, Bloomberg reports. There are unverified reports suggesting that MicroStrategy (+6.3%) could be included in the Nasdaq 100 index following its reconstitution (to be announced on November 29th).

FX

• 
  USD - USD was knocked lower by the stronger JPY (see below section for details). Given the Thanksgiving Holiday yesterday and the likelihood that most traders Stateside will take it as a long weekend, today's US macro narrative is likely to remain unaltered. The next key inflection point is likely to come via NFP next Friday. DXY has been as low as 105.61 with the next potential level of support via the 12th low @ 105.48.


• 
  EUR - EUR/USD trades trivially firmer vs. the USD with focus for the Eurozone on inflation metrics which saw an-line print for the headline at 2.3%, whilst the super-core was a touch softer at 2.7% vs. Exp. 2.8% and the service metric nudged lower to 3.9% from 4.0%. ECB pricing was little changed with odds of a 25bps move at the December meeting seen at around 84%. EUR/USD went as high as 1.0597 in early trade as the USD faced a bout of selling pressure before running out of steam ahead of the 1.06 mark; not breached since November 20th.


• 
  GBP - Cable briefly made its way back onto a 1.27 handle following the broadly softer USD with UK-specific newsflow having been particularly light this week. Cable has been as high as 1.2749 with the next upside target coming via the 13th November peak @ 1.2769.


• 
  JPY -JPY the standout outperformer across the majors on account of firmer Tokyo inflation metrics overnight which act as a precursor to the nationwide report. As such, the narrative of a December rate hike has continued to firm with a 25bps hike priced at around 56%. USD/JPY briefly crossed below 150 for the first time since October 21st with a session low @ 149.55.


• Tokyo CPI YY (Nov) 2.6% vs. Exp. 2.2% (Prev. 1.8%), CPI Ex. Fresh Food YY (Nov) 2.2% vs. Exp. 2.1% (Prev. 1.8%), CPI Ex. Fresh Food & Energy YY (Nov) 1.9% vs. Exp. 1.9% (Prev. 1.8%).


• 
  Antipodeans - NZD outpacing its antipodean peer in a slight extension of the outperformance seen since the RBNZ rate decision. NZD/USD has moved back onto a 0.59 handle and above its 21DMA @ 0.5909 with a current session peak @ 0.5928. AUD/USD is holding above the 0.65 mark with the next target coming via its 21DMA @ 0.6531.

FIXED

• 
  Bunds eventually catch a bid with 2 and 10yr yields seeing the steepest decline since Dec 2023. EZ Flash HICP printed as expected for the headline and core with the super core slightly cooler and the key services figure also moderating slightly, but still elevated at 3.9%. Overall, the data sparked no real move for EGBs while ECB pricing has shifted a percentage-point or two towards 25bps.


• As it stands, a December 25bps cut has an 84% probability ascribed to it with the remainder for a larger 50bps magnitude.


• Prior to this, Bunds were largely unreactive to the morning’s French data, though EGBs and USTs did see some upside to incremental highs just before, with Bunds hitting a 134.81 peak.


• 
  Oats holding just off a 126.14 trough, with the OAT-Bund 10yr yield spread at 82bps, a touch higher on the session but shy of the 90bps multi-year peak from earlier in the week.


• The in-focus EGB saw pressure earlier on but it has since pared. Pressure was seen as PM Barnier provided concessions to the RN, saying he will drop the electricity tax increase. However, Le Pen says she still has red lines and Barnier has until Monday to adhere to them before she makes a decision on the budget as a whole.


• As such, France is once again on the precipice of political instability. As it stands, Barnier losing the confidence motion would not cause a new election (given proximity to the last one), and as such Macron would have to appoint a new PM and attempt to get a mandate around them before a new budget was brought forward.


• Given the above, some have questioned the logic of Le Pen going at this stage. Nonetheless, it is now largely a waiting game until we get the opinions of RN and also NFP on the amendments to the budget and then timing for the first attempted passage/confidence motion, possibly as soon as next week.


• In the meantime, S&P is scheduled to review France after the close. In May, they cut the rating to AA- from AA with a stable outlook. A cut that occurred in May given concerns around the French fiscal situation at that point.


• 
  Gilts saw a morning of gains (coverage now on Mar’25), opened in the green and extended to a 96.10 peak shortly after with specifics light and fundamentals behind the move limited. Thereafter, Gilts settled slightly but have since surpassed the above peak to 96.25.


• Action which was possibly a function of Gilts catching up to a move higher in EGBs/USTs at the time, again drivers behind the move in peers were limited with it occurring a handful of minutes before the Flash French HICP numbers.


• For the UK, data showed marked upside in mortgage activity for October with both approvals and lending surpassing the forecast range. With approvals at their highest since Aug’22. Data had no discernible impact on Gilts.


• Coverage has now switched to Mar’25, with USTs holding at a 111-07 peak, a marginal best for the week with resistance next at 111-13 from the beginning of November, after which there is a bit of a gap until 112-00 and levels thereafter from late-October.


• 
  USTs are incrementally firmer with specific light and action expected to be limited today given the partial post-Thanksgiving closures.


• Cash trade has resumed but, unsurprisingly, is limited with yields softer across the curve and a modest flattening bias in play.

COMMODITIES

• 
  Crude benchmarks are firmer with WTI outperforming on account of the lack of settlement due to Thanksgiving. Specifics today have been somewhat light in European hours, with the docket ahead also limited.


• For the most part, we are awaiting updates on OPEC+ and the Lebanon ceasefire. On OPEC, reports yesterday implied that they are considering delaying bringing back production until Q1-2025, a report which is in-fitting with the views of numerous desks in the last days/weeks.


• On the Lebanon ceasefire, both sides were blaming each other for the reported breaches of it. More explicitly, Netanyahu said they should prepare for a strong war if the agreement is violated. Though, as it stands and despite the breaches, it appears the ceasefire is largely holding for now.


• Benchmarks towards the lower-end of c. USD 1/bbl parameters but, as has been the case throughout all of the week, remain in proximity to familiar ranges


• 
  Precious Metals are in the green, benefitted this morning on the above punchy rhetoric and as the USD was under pressure.While the DXY has since lifted well off lows the yellow metal has managed to hold onto the bulk of overnight gains, only slipped slightly from a USD 2666/oz peak. Though, this leaves the benchmark with some way to go to a test of Monday’s USD 2721/oz WTD best.


• The Docket ahead is very light. As such, the precious metal will be awaiting any update to the geopolitical situation ahead of tomorrow's official PMI data from China in which the headline Manufacturing PMI is expected to show a further improvement.


• 
  3M LME Copper - Firmer, benefitting from the constructive US risk tone as participants return to some degree following Thursday’s Thanksgiving holiday.


• However, action is limited overall with 3M LME Copper only just above the USD 9k mark after trading on either side of it multiple times throughout the week.


• As with gold, the docket ahead is light and we look to China’s PMI data over the weekend for the next catalyst.

EUROPEAN DATA

• EU HICP Flash YY (Nov) 2.3% vs. Exp. 2.3% (Prev. 2.0%); Core 2.8% vs. Exp. 2.8% (Prev. 2.7%); Services CPI 3.9% vs. Prev. 4.0%


• EZ Super-core HICP Flash YY (Nov) 2.7% vs. Exp. 2.8% (Prev. 2.7%)


• French CPI (EU Norm) Prelim YY (Nov) 1.7% vs. Exp. 1.7% (Prev. 1.6%); MM -0.1% vs. Exp. 0.0% (Prev. 0.3%)


• French CPI Prelim. (Nov): Y/Y 1.3% vs Exp. 1.5% (prev. 1.2%); M/M -0.1% vs Exp. 0.1% (prev. 0.2%)


• German Unemployment Chg SA (Nov) 7.0k vs. Exp. 20.0k (Prev. 27.0k); Rate SA (Nov) 6.1% vs. Exp. 6.1% (Prev. 6.1%)


• 
  ECB Consumer Expectations Survey (Oct): See inflation in next 12 months at 2.5% (prev. 2.4%); 3y ahead sees 2.1% (prev. 2.1%)


• UK Mortgage Approvals (Oct) 68.303k vs. Exp. 64.5k (Prev. 65.647k, Rev. 66.115k); Lending 3.435B GB vs. Exp. 2.85B GB (Prev. 2.541B GB, Rev. 2.573B GB)

CENTRAL BANKS

• 
  ECB's Villeroy says inflation has slowed and is going towards their target; confident they will reach their target next year. Also think the PM's proposed budget goes in the right direction.


• 
  ECB's Kazaks says rate cuts are to continue


• 
  ECB's Nagel says inflation uptick is expected and 2% goal is in sight


• 
  ECB's de Guindos says the acceleration in inflation was expected and inflation is going quite well; uncertainty remains over services inflation. News on the economy is less good.


• ECB announces changes to the Eurosystem collateral framework to foster greater harmonization.


• BoE says the CCyB is held at 2%.

GEOPOLITICS

• IDF forces continue to deploy in South Lebanon to protect the State of Israel and its citizens, according to Al Jazeera.


• Russian and Syrian warplanes have launched airstrikes against the positions of armed rebels, according to Iran Intl. citing the Syrian Observatory for Human Rights


• Senior Iranian official says Tehran expects "tough and serious" talks with E3 in Geneva.


• Iran Deputy Foreign Minister Gharibabadi says that Iran, France, Germany and UK agree to continue dialogue in near future


• Iranian Foreign Minister has blamed the rebel attacks in Syria on the US and Israel, according to State Media


• Eleven Chinese and Russian military aircraft intrude South Korea's air defence zone. while South Korea launched air force jets in a tactical manoeuvre against the intrusion, according to Yonhap

NOTABLE NORTH AMERICAN NEWS

• Chinese Financial Regulator says efforts need to be actively made to support high-quality economic and social development. Will strengthen the implementation of a package of policies to stabilise growth. WIll accelerate the expansion and improvement of the urban real estate financing coordination mechanism. Will actively promote stable growth in foreign trade and support measures to boost consumption.


• 
  TSMC (TSM) plans to start manufacturing its 2nm process in the US around 2028, following mass production in Taiwan starting in 2025, according to reports in the Taiwanese press. This timeline is in keeping with Taiwan's policy, which restricts TSMC from investing in advanced technologies abroad until three years after domestic production begins.


• 
  Thanksgiving Sales - US online Thanksgiving sales rose by +4% Y/Y in 2024, surpassing last year’s +2% growth, driven by early and bold discounts, Reuters reports. Salesforce (CRM) projects Cyber Week global sales of USD 311bln, while holiday shopping growth slows to its weakest in six years, the report added. Meanwhile, Adobe (ADBE) analytics notes Consumers spent a record USD 6.1bln online on Thanksgiving, up 8.8% Y/Y; expecting consumers to spend a record USD 10.8bln online for Black Friday (+9.9% Y/Y); Cyber Monday will remain the year's biggest shopping day, driving a record USD 13.2bln in spend (+6.1% Y/Y).

29 Nov 2024 - 15:15- EquitiesEU Research- Source: Newsquawk