Markets:

At the start of trading this morning, core (US) bonds showed tentative signs of taking a breather after their recent rally. However, French data again perfectly fit the recent bond friendly market momentum. French Q3 GDP growth was downwardly revised from +0.1% to -0.1%. October consumer spending fell off a cliff (-0.9% M/M) and, in line with evidence from other EMU member states, French HICP inflation printed well below expectations at -0.3% M/M and 3.8% Y/Y (from 4.5% and vs 4.1% expected). Yields across the Bund- and EMU swap curves, touched new correction low levels, with the short end taking the lead. Later, the flash estimate of EMU headline inflation printed at -0.5% M/M and 2.4% Y/Y (from 2.9%). Core inflation also eased substantially from 4.2% Y/Y to 3.6% Y/Y. This time there was no further market reaction. Too early to really call it a buy-the-rumour, sell-the fact reaction yet. Even so, especially long term yields tried to leave recent lows. German yields are changing between -1 bp (2-y) and +4 bps (30-y). In the US, the focus was on the October US income and spending data, and more in particular on the price deflators. Both spending & income (0.2% M/M) and the deflators (headline 3.0% vs 3.1% expected, core 3.5% from 3.7%) were very close to expectations. US jobless claims also brought no market moving news (218k from 211k, exactly as expected). US bonds are taking a breather from their recent rally with the 2-y rebounding 5.5 bps. The 10-y adds 9 bps (4.34%). The focus now turns the US manufacturing ISM, to be released tomorrow. The market expects a slight improvement (47.8) but still in contraction territory. Interesting to see how bond markets react in case of additional signs of a slowdown in activity. Despite some ‘hesitation’ over the previous days, especially in US indices, equities still feel supported by the hope for substantial monetary easing next year. The EuroStoxx 50 adds 0.30%, nearing the 4400 mark with the 2023 top at 4491 also coming on the radar. US indices open mixed (Dow +0.5%, Nasdaq -0.3%).

On FX markets, EUR/USD in the first place took a hit after the big miss in French data. At the same time, the dollar gradually also showed tentative signs of bottoming. At 1.09, the first attempt of the ) cross rate to regain the 1.10 probably is rejected for now. USD/JPY also tries to leave the recent lows behind (148.35). EUR/GBP in line with the broader early morning euro sell-off temporary dropped to the 0.862 area, but the move was fully reversed later (currently 0.8645). It’s a bit telling that sterling in the current environment fails to profit from broader euro weakness.

News & Views:

Saudi Arabia is rallying support behind a proposal of additional OPEC+ production supply cuts of 1 million barrels a day (1% of global supply) in an effort to prevent the oil market returning to a surplus next year. The Kingdom would simultaneously extend its own voluntary cutback of the same size which has been in place since July. OPEC+ has its ministerial meeting via online sessions after the physical event was delayed last week because of ongoing negotiations. One of the remaining stumbling blocks in negotiations are production for African members like Angola and Nigeria. Both countries have underproduced in recent years because of underinvestment and try to revive their output. Brent crude prices rallied from $83/b to $84.5/b on the news.

Canadian GDP unexpectedly shrank in the third quarter of the year (-0.3% Q/Q). An upward revision to the Q2 figure to 0.3% Q/Q implies that the technical recession is nevertheless avoided for now. Details showed a decrease in international exports (-1.3% Q/Q vs 0.2% decline in imports) and slower inventory accumulation being partially offset by increases in government spending and housing investment. Final domestic demand increased 0.3% Q/Q, following a similar increase in the second quarter. Business investment in non-residential structures fell by 2% Q/Q. Separate data showed compensation of employees rising by 1.3% on a nominal basis in Q3 of 2023. Canadian markets didn’t respond to the release with USD/CAD changing hands around 1.36.