In focus today
In the euro area, we will get the full euro area inflation print for November, after the local prints yesterday. In the light of yesterday’s local prints, we expect euro area inflation to come in at 2.2%, a bit lower than the 2.3% indicated beforehand. German CPI inflation increased less than expected to 2.2% y/y (cons: 2.3% y/y) in November from 2.0% in October. Spanish inflation rose to 2.4% y/y in November from 1.8% y/y in October as expected. Core CPI inflation rose less than expected to 2.4% y/y (consensus: 2.6%) from 2.5% y/y in October.
In Sweden, we receive data for Q3 GDP. Yesterday’s NIER confidence data indicated an improvement in economic sentiment, hinting that the October decline in the NIER survey might have been an anomaly. The NIER release, along with production and consumption data, also indicates that the Q3 GDP figures might be more favorable than the GDP indicator suggested (-0.1% q/q, -0.1% y/y). A stronger GDP reading today for Q3 would be a bit of a paradox, as the weaker NIER survey and GDP indicator were contributing factors to the Riksbank’s decision to cut rates by 50bp earlier this month. Additionally, we receive October’s retail sales data. It is noteworthy that sentiment among households and in the retail trade sector continued to improve in yesterday’s NIER survey, which suggests that retail sales will recover from here.
Over the weekend we get Chinese PMIs for November. In the past two months we saw a decent increase in the official PMI manufacturing from NBS rising to 50.1 in October. We expect to see a flat reading reflecting somewhat better activity after the recent round of stimulus. We also look for a small rise in Caixin PMI manufacturing (Monday) coming from 50.3 in October.
Economic and market news
What happened overnight
In Japan, the Tokyo CPI excl. fresh foods came in higher than expected at 2.2% (consensus: 2.1%, prior: 1.8%). The print fuelled expectations for a potential 25bp rate hike in Japan in one of the upcoming meetings. USD/JPY dropped from around 150.3 before the meeting to 149.80 after the release. Since it has strengthened a bit and is now trading around 150. We expect Bank of Japan to deliver a 25bp hike at the December meeting.
What happened yesterday
In the euro area, ECB’s Villeroy said that ECB should keep its options open for a bigger than 25bp rate cut at the next monetary policy meeting. Furthermore, he added that the policy rate could be on a path where it ends below the neutral rate, such that monetary policy once again stimulates growth. We still see the most realistic case that ECB cut the interest rate by 25bp at the December meeting.
EU commissioner Von der Leyen presented a new EU commission. The new Commission leans centre-right and will prioritize competition, defence, and the green transition. However, as the Greens lack a commissioner, there is likely less emphasis on climate issues in favour of competitiveness and industrial policies. A notable change under the second term of President von der Leyen is the redistribution of responsibilities among commissioners, ensuring that basically no single commissioner has full autonomy. Hence, von der Leyen will gain much more influence this time and the picks of commissioners show this already as it was the first time no commissioner was ousted by Parliament.
Von der Leyen also presented that she is establishing a task force to implement the recommendations from the Draghi report, which highlights the focus on competitiveness. Although her statements were somewhat unclear, the substantial aspect is the formation of a team, including some individuals who assisted Draghi in drafting his confidential report. This team will support the Commission’s departments in ensuring the report’s recommendations are executed effectively.
Equities: Global equities were higher yesterday despite the guiding star of the US being out for celebrating Thanksgiving. With the US markets closed, it was a rather quiet session, but this did not deter Europe from posting gains of approximately 0.5%, led by cyclicals. Although macro factors are not the sole focus currently, we received a favourable combination of news, with inflation figures coming in even more benign than anticipated and the Ecofin data surprisingly strong. The US is back for only half a day today following yesterday’s celebrations, yet this has not prevented China from pushing markets higher, while the rest of Asia remains more subdued. It is important to consider the currency effect for Japan again this morning. Both European and US futures are trending upwards this morning.
FI: Yesterday, the OAT-Bund spread saw a 4bp tightening to 82bp following French PM Barnier’s concession to National Rally’s demands, which could allow the 2025 budget to be approved by parliament. EGB yields continued moving lower throughout Thursday, as markets added to ECB rate cut expectations for 2025 following a string of weaker-than-expected core inflation prints out from Germany, Spain and Belgium. The 5y5y EUR inflation swap rate dropped below 2% for the first time since August 2022, highlighting the non-negligible risk that inflation could settle below the target. US was closed for Thanksgiving.
FX: Apart from the politically induced sell-off to the BRL yesterday’s FX session was rather quiet and dominated by the US Thanksgiving holiday season. The USD was the general underperformer while the MXN, NOK and JPY all did well albeit gains were relatively limited.