Newsquawk European Market Wrap - 6th December 2024

• NFP beat expectations but was accompanied by an uptick in the unemployment rate


• Odds of a Fed rate cut rose from 72% to 89%; 92bps of cuts seen by end-2025


• European stocks mixed, USD mixed vs. peers, OATs outpaced peers in FI

EQUITIES

• 
  European bourses maintained a mixed performance throughout the session following a flat open amidst a lack of fresh pertinent catalysts during the morning and in the run-up to the US jobs report, which was net-net dovish with December Fed pricing at -22bps vs -18bps pre-data. Nonetheless, European bourses were hardly affected with traders looking ahead to next week's ECB.


• 
  In terms of majors, CAC 40 narrowly outperforms in the aftermath of the French political developments as President Macron looks to name a new PM within days, with French Banks once again seeing a strong performance. Furthermore, luxury stocks saw upside amid a possible China play in the run-up to the Chinese Central Economic Work Conference next week.


• 
  European sectors remained mixed with no clear bias or theme. Consumer Products & Services retained top spots while Basic Resources stayed as the laggard (despite constructive price action across base metals), albeit only modestly in the red. Energy was also subdued amid losses in the crude complex.


• 
  US equities rose at the cash open after futures received a boost from the US jobs report which was received as dovish given that the unrounded unemployment rate was a fraction away from being rounded up to 4.3% (vs Bloomberg exp. 4.1% and Reuters exp. 4.2%). Fed pricing tilted modestly dovishly across the horizon with eyes on next week's US CPI to cement the fate for the 18th December Fed confab.

FX

• 
  USD - DXY was temporarily knocked lower post-US NFP. Despite the headline posting an above-consensus outturn, the market opted to focus on the jump in the unemployment rate from 4.1% to 4.2% (on an unrounded basis it was just a whisker from 4.3% at 4.246%). Accordingly, this appears to have sealed the deal for a December with the odds of such a move rising from 72% to 89%. USD's performance was mixed vs. peers. DXY slipped to its lowest level since 11th November @ 105.41 before recovering off the lows.


• 
  EUR - EUR/USD briefly reclaimed 1.06 to the upside topping out at 1.0629 in the wake of NFP before making its way back onto a 1.05 handle. Markets still await details of French PM developments. The latest update has come from the French Socialists who are willing to work with Macron as long as policies of the left are adopted. Attention now turns to next week's ECB policy announcement. Odds of a 25bps move sit at 86%.


• 
  GBP - Steady vs. the USD in quiet UK newsflow aside from comments by BoE's Dhingra who stuck to her dovish credentials by noting that the MPC "should be easing more". Cable briefly made its way back onto a 1.28 handle post-NFP before fading gains. Next week's UK docket sees monthly GDP data but this is unlikely to move the policy trajectory at the BoE.


• 
  JPY - JPY initially failed to garner much support from comments by Japan's main Opposition party Chief who said the BoJ should normalise monetary policy, adding it is wrong to focus too much on keeping monetary policy loose when Japan is experiencing inflation. However, the JPY eventually edged out the USD following the post-NFP selling in USD. USD/JPY made its way back onto a 149 handle with a session trough @ 149.37.


• 
  Antipodeans - Both softer vs. the USD and near the bottom of the G10 leaderboard. For AUD, the latest Reuters poll showed unanimous expectation for the central bank to keep rates on hold at next week's meeting with the first rate cut expected in Q2 2025 vs. the Q1 2025 forecast seen in the November poll. AUD/USD slipped below yesterday's 0.6421 low with the next target coming via the 0.64 mark with Wednesday's low just below @ 0.6399. NZD/USD took out yesterday's 0.5848 low but stopped short of Wednesday's low @ 0.5829.


• 
  CAD - The laggard across the majors following the latest Canadian labour market report. Despite employment change exceeding expectations and being mostly comprised of full-time positions, the market chose to focus on the larger-than-expected jump in the unemployment rate. Accordingly, odds of a 50bps cut by the BoC next week rose from 56% to around 68%. Despite the USD sell-off post-NFP, USD/CAD broke higher after the release with a session peak @ 1.4114; 1.41 hadn't been crossed since 26th November.

FIXED

• 
  Bunds/OATs - Bunds saw some fleeting upside following soft German IP data before ebbing lower and lagging behind its French counterpart as traders have continued to narrow the FR/GE spread (Bunds moved back into positive territory post-NFP). The spread hit its lowest level since November 21st @ 72.4bps having peaked just shy of 89bps on Monday with last week’s 12yr high at 90bps. In terms of the latest for French politics, the leader of the Socialists willing to work with Macron as long as policies of the left are adopted. Attention now turns to next week's ECB policy announcement with odds of a 25bps cut priced at 86%.


• 
  Gilts - UK paper largely followed the direction provided by global counterparts whereby initial shallow losses were reversed post-NFP and the Mar'25 contract made its way back onto a 96.00 handle. UK data points were lacking today and this will remain the case until UK GDP next week (not expected to be a gamechanger for the BoE). BoE commentary today came from MPC member Dhingra who suggested the BoE should be easing more; not a surprise given her dovish credentials. UK 10yr yield remains above 4.25%.


• 
  USTs - Downside in the early stages of trade was swiftly reversed following the latest US jobs report. Despite the headline exceeding expectations, the market oped to focus on the jump in the unemployment rate from 4.1% to 4.2% (on an unrounded basis it was just a whisker from 4.3% at 4.246%). This further cemented odds of a December Fed rate cut with such an outcome seen at 89% vs. 72% pre-release. Accordingly, the US yield curve bull-steepened with the 2s10s spread widening back out to around 5bps. Earlier in the week, ING highlighted that a move below 4.15% in the 2yr yield could open up a test of 4% (currently circa 4.08%). The Mar'25 UST hit its highest level since 21st October.

COMMODITIES

• 
  Crude oil prices extended on losses with prices lacklustre after the prior day's choppy performance amid the deluge of OPEC+ updates, with price action today largely one way despite a lack of obvious drivers, with little action seen on the US jobs data, while energy traders await the Baker Hughes Rig Count. WTI Jan'25 resided between USD 67.32-68.49/bbl and Brent Feb'25 within USD 71.14-72.19/bbl parameters.


• 
  Spot gold saw a choppy session within relatively tight ranges with no major price action seen on the US jobs report, with eyes also on geopolitics amid a consistent flurry of headlines regarding Syria. Spot gold resided in a USD 2,613-2,645.73/oz range after dipping under yesterday's USD 2,623.61/oz low. Prices remain sandwiched between the 50 DMA (USD 2.667.96/oz) and 100 DMA (2,583.44/oz).


• 
  3M LME copper experienced a choppy session and gave back most of the gains seen in the European morning following the US jobs report. Participants now look ahead to the Chinese Central Economic Work Conference next week in which the market will be closely watching for shifts in tone on fiscal and monetary policy heading into next year.


• 
  Morgan Stanley raised its H2 2025 Brent price forecast to USD 70/bbl (prev. USD 66-68/bbl); and lowered its estimate for OPEC-9 production by 400k BPD for 2025 and 700k BPD by Q4 2025. The desk said the OPEC+ updated production agreement tightens its supply/demand outlook for 2025, particularly for H2. MS still estimates a surplus for the oil market next year, but smaller than before.


• 
  HSBC says brent forecast remains USD 70/bbl for 2025 and beyond. Expected oil market surplus in 2025 is reduced to just 0.2MBD on it's estimates if OPEC+ goes ahead with output hikes in April. Decrease OPEC+ crude oil production estimates by 0.3MBD for 2025 and by 0.4MBD for 2026 to reflect the slower unwinding of voluntary cuts. Forecasts an oil market surplus of 0.2MBD (vs prev. exp. 0.2MBD). Balances show surplus growing to 1.2MBD as Non-OPEC production broadly matches demand growth and as OPEC+ barrels return to the market.


• BofA sees additional OPEC+ delays ahead. Expects non-OPEC oil supply to take around 75% share of the world's global demand growth into 2030. Increasing oil surpluses drive brent to avg. USD65/bbl, without expecting net increase in OPEC+ production in 2025. Non-OPEC production set to increase to 1.4mln bpd Y/Y next year


• 
  Oil supplies to Czech Republic via Druzbha were resumed today, according to CTK citing Orlen CEO.

EUROPEAN NEWS

• 
  French Socialists have expressed a willingness to work with a Macronist or Republican Prime Minister if “reciprocal concessions” are made, according to Politics Global.


• 
  French Socialist leader says ready to contribute to breaking political gridlock, but need a change of political direction; priorities include changing pensions system; only PM from the left can bring political change. French President Macron should also reach out to communist and greens on forming a government. Aim in talks with Macron is not to accept a government that does not include policy priorities of the left.


• 
  French Socialist Leader says President Macron did not impose any prerequisite on anything and told Macron they demand political change and a leftwing PM; told Macron will not accept rightwing PM 'under any circumstance. Macron acknowledged the Socialist party could bring a new hope to the country.


• 
  European Commission President Von der Leyen says EU and Mercosur agree on a deal; The European Commission and the South American trade bloc Mercosur announce a deal to create a huge free trade area, after almost 25 years of negotiations, according to dpa

EUROPEAN DATA

• 
  EU Employment Final YY (Q3) 1.0% vs. Exp. 1.0% (Prev. 1.0%)


• 
  EU Employment Final QQ (Q3) 0.2% vs. Exp. 0.2% (Prev. 0.2%)


• 
  EU GDP Revised YY (Q3) 0.9% vs. Exp. 0.9% (Prev. 0.9%)


• 
  EU GDP Revised QQ (Q3) 0.4% vs. Exp. 0.4% (Prev. 0.4%)


• 
  UK Halifax House Prices MM (Nov) 1.3% vs. Exp. 0.2% (Prev. 0.2%, Rev. 0.4%)


• 
  German Industrial Output MM (Oct) -1.0% vs. Exp. 1.2% (Prev. -2.5%)


• 
  French Trade Balance, EUR, SA (Oct) -7.666B (Prev. -8.266B, Rev. -8.418B)


• 
  French Imports, EUR (Oct) 56.404B (Prev. 56.853B, Rev. 56.710B)


• 
  French Exports, EUR (Oct) 48.738B (Prev. 48.587B, Rev. 48.292B)


• 
  French Current Account (Oct) -2.6B (Prev. -2.1B, Rev. -2.4B)


• 
  Italian Retail Sales NSA YY (Oct) 2.6% (Prev. 0.7%)


• 
  Italian Retail Sales SA MM (Oct) -0.5% (Prev. 1.2%)


• 
  Norwegian Manufacturing Output MM (Oct) -1.6% (Prev. -0.8%)

CENTRAL BANKS

• 
  BoE's Dhingra says UK monetary policy is restrictive and weighting on supply capacity and investments; says MPC should be easing policy more, via Bloomberg TV. Does not have reason to disagree with market view that neutral rate for UK is 2.5-3.5%. Neutral rate is not a useful tool for near-term rate decision. Short term lowering effect of US tariffs on UK inflation might be outweighed by productivity hit from supply chain disruption.

GEOPOLITICS

• Senior Iranian official says Tehran has taken all necessary steps to increase number of military advisers in Syria and deploy troops; likely that Tehran will need to send military equipment, missiles, and drones to Syria.


• 
  IDF says it is strengthening its air and ground forces in Golan 'based on assessment of situation in Syria; Forces deployed along the border and ready for all scenarios.


• 
  IAEA Chief Grossi tells Reuters that Iran was producing uranium enriched to up to 60% at a rate of around 5-7kg a month, and now it is going to be much more than that.

NOTABLE NORTH AMERICAN NEWS

• 
  BofA Weekly Flow Show: USD 136.4bln inflow to cash in week to Wednesday - largest weekly inflow since March 2023. Stocks: USD 8.2bln inflow, Bonds: USD 4.9bln inflow, Crypto: USD 3bln (largest every 4-week inflow of 11bln), YTD inflows: USD 53bln annualised, Bull/Bear Indicator: 3.7 (prev. 4.7)

NORTH AMERICAN DATA

• 
  US Non-Farm Payrolls (Nov) 227.0k vs. Exp. 200.0k (Prev. 12.0k, Rev. 36k); two month net revisions +56k (prev. -112k)


• 
  US Private Payrolls (Nov) 194.0k vs. Exp. 200.0k (Prev. -28.0k, Rev. -2k)


• 
  US Government Payrolls (Nov) 33.0k (Prev. 40.0k, Rev. 38k)


• 
  US Manufacturing Payrolls (Nov) 22.0k vs. Exp. 28.0k (Prev. -46.0k, Rev. -48k)


• 
  US Unemployment Rate (Nov) 4.2% vs. Exp. 4.2% (Prev. 4.1%); unrounded 4.246%.


• 
  US Average Earnings MM (Nov) 0.4% vs. Exp. 0.3% (Prev. 0.4%)


• 
  US Average Earnings YY (Nov) 4.0% vs. Exp. 3.9% (Prev. 4.0%)


• 
  US Average Workweek Hrs (Nov) 34.3hrs vs. Exp. 34.3hrs (Prev. 34.3hrs, Rev. 34.2hrs)


• US Labor Force Partic (Nov) 62.5% (Prev. 62.6%)


• 
  US Total Net Birth-Death Forecast (Nov): 5k (prev. 368k)


• 
  Canadian Employment Change (Nov) 50.5k vs. Exp. 25.0k (Prev. 14.5k)


• 
  Canadian Full Time Employment Chng SA (Nov) 54.2k (Prev. 25.6k)


• 
  Canadian Part Time Employment Chng SA (Nov) -3.6k (Prev. -11.2k)


• 
  Canadian Unemployment Rate (Nov) 6.8% vs. Exp. 6.6% (Prev. 6.5%)


• 
  Canadian Participation Rate (Nov) 65.1% (Prev. 64.8%)

NOTABLE APAC NEWS

• South Korea ruling party leader told party members that President Yoon has not changed his position, according to Reuters citing a Party Lawmaker.


• 
  South Korean impeachment vote to take place on Dec 7th at 17:00 local time (08:00 GMT).


• South Korean opposition leader warns of possibility of another martial law attempt by President Yoon before Saturday's impeachment vote. Says the likelihood of impeaching Yoon is increasing


• China is seeking to meet annual economic targets for 2024, according to local radio cited by Bloomberg.


• 
  China reportedly has big room to raise the fiscal deficit, according to Xinhua.

06 Dec 2024 - 15:00- ForexEU Research- Source: Newsquawk