Markets

With few important data on the agenda, trading on US and EMU (bond) markets was mainly order driven and technical in nature. At the start of the session, Bunds tried to extend their recent rally, but the move soon stalled. ECB’s Nagel airing that its too early to speculate about rate cuts hardly can be considered as ‘news’. In a sign to recent moves, he also said that not only the level of interest rates matters, but also expectations about the future path. ECB monetary data showed a further slowdown in M3 money supply (-1.0% Y/Y). Monetary tightening also feeds into credit availability. Loans to households slowed to 0.6% Y/Y in October from 0.8%. Loans to non-financial corporates even dropped below last year’s level (-0.3% Y/Y from 0.2%). However, this is exactly what policy tightening is aiming for. After a brief up-tick early in US dealings, German yields are currently ceding between 4 bps and 1 bp (30-y). The 10-y German yield (2.53%) is holding above the 2.50% support. Tomorrow’s German inflation and Thursday’s EMU CPI will help bring clarity whether or not the recent decline in yields has run its course. Intra-EMU spreads halted their recent tightening as the ECB (Lagarde yesterday, Nagel today) flagged it intends starting to reduce PEPP bond holdings well before end 2024 as currently guided. The 10-y Italian spread vs German widens 5 bps today. US yields show a similar picture as EMU counterparts (2-y -4 bps, 30-y unchanged). US house price data (S&P Corelogic CS 20 city at 0.67% M/M and 3.92% Y/Y) were close to expectations. After finishing this report, US consumer confidence (conference Board) was stronger than expected, but with a downward revision to the October figure. Tonight, the US Treasury sells $39bn of 7-y Notes. Equity markets yesterday to some extent ‘decoupled’ from bond markets and ran into resistance. This tentative topping out process continued today. The EuroStoxx 50 is losing about 0.5%. The 4400/4491 resistance probably remains a high hurdle even after the recent easing on interest rate markets. The US S&P 500 index opened 0.15% lower. Brent oil hovers near $80/b. Rumours from ‘informed sources’ say that the OPEC+ cartel still hasn’t reached an agreement on output levels.

On FX markets the dollar is still looking for a bottom on its recent setback. EUR/USD (1.0980) is breaking the 1.0960/65 resistance. DXY is setting a minor correction low below 103.18, but follow-trough price action stays modest for now (103.0). USD/JPY (148.3) holds in the ST 147.15/149.75 corridor. Sterling’s recent outperformance halted today, with EUR/GBP at 0.868, holding above the 0.8650 ST neckline.

News & Views

The ECB published results of its twice-yearly Survey on the Access to Finance of Enterprises (SAFE) in the euro area, covering the period from April to September. Firms signaled a continued increase in turnover, while higher labour, production and interest costs weighed on their profitability (net deterioration of -14% compared with previous survey). They expect non-labour input costs to increase by 6.1% over the next 12 months with employees’ wages up 4.3% (from 5.4% in previous survey). Selling prices are projected 3.7% higher in the year-ahead (from 6.1%). Average employment is still forecast to increase (1.7% average) The financial vulnerability indicator, which provides a comprehensive picture of firms’ financial situation, suggests that 9% of EMU enterprises encountered major difficulties in running their business and servicing their debts over the past six months, a level last seen during the Covid-19 pandemic. Looking ahead, firms expect a decline in the availability of all external financing sources, and especially bank loans. This suggests that part of the transmission of monetary policy to firms’ financing conditions is still in the pipeline.

German GfK consumer confidence bounced back slightly in December (-27.8 from -28.3) after hitting a 7-month low in November. The slight increase in consumer sentiment results from the decrease in willingness to save this month from 8.5 to 5.3 points. GfK reacted that consumer sentiment is stabilizing as the year draws to a close, but continues to be at a very low level with no signs of a sustainable recovery in the coming months. French consumer confidence increased from 84 to 87 in November, the highest level since April 2022. Details showed consumers turning less pessimistic on their future personal financial situation and standard of living, while they do fear an increase in unemployment.